Funds from an external source is what every small business needs in order to finance its expenses and for expansion purposes. The process of accessing such funding in form of loans involves long procedures and is hectic, hence preventing businesses from getting loans.
These fundamental factors are as listed below:
A history of poor credit
Lenders use credit reports to assess a borrower’s credibility. Past reports showing a lack of diligence in loan repayment are a cause for alarm to the lender, increasing chances of rejection. A borrower with bad credit history should consider alternative financing options. Such options include online lenders who emphasize on credit scores.
Low levels of cash flow
Cash flow is the amount of cash money a borrower has to pay for the loan received. It is a lender’s first consideration when gauging how a business is performing. It is, therefore, the first determining factor to the owner on whether they can afford a loan or not. A wise business owner monitors their cash flow levels preferably quarterly to enhance optimization in cash flow. Knowledge of this fact gives an owner confidence in approaching a lender.
Planning is a key principle in the finance world and spontaneity is highly discouraged. A lender expects an organized, quantitative and detailed business plan to be able to carry on with the loan process. Most small businesses lack a formal business plan, in which case they are advice to forecast their earnings prior to loan application. This will enable the lender to asses the profitability of the business. A borrower should also have a plan for the money they are seeking. Inability to bring the vision of the business home to the lender and give a breakdown of the borrowed capital disqualifies most borrowers. Clarity is key, the why for the loan and how it will be repaid should be stated.
Lack of organization
Documents and all forms of paperwork should be available during application for the loan. A business owner should make reference to a number of resources during application. A checklist may be used for order and precision. It will eliminate disorganization and unpreparedness.
Lack of expert advice
A lender is interested in knowing whether the borrower sought any pieces of advice from a financial expert. Such experts may include accountants and mentorship groups formed by current or previous executives. It is important as it informs the kind of capital most important in a given industry. Online research and advice from networking groups gives insight and broadens the owner’s scope.
Most business owners approach lenders for a loan without being able to outrightly demonstrate why it is them and not anyone else who deserve to be given the loan. They lack passion and instead approach the lender with a trying mentality which cannot convince them to put their money in one’s business. Putting passion into the presentation goes a long way