9 Loan Challenges Every Small Business Has To Face - Magzinenow

9 Loan Challenges Every Small Business Has To Face


Acquiring business loans can be, at times, an exhausting hassle. Even if you are not working with a financial institution such as a bank or venture capital trust, there are many sureties and documents that you need to provide to become eligible for a loan.

Nobody likes to ask others for money or beg people to invest in their business. However, small to medium-sized enterprises go through a lifecycle that puts them in a situation every now and then to acquire a business loan.

According to a recent study by CrowdWriter.com, 29% of small businesses fail because they run out of capital, with 43% of them applying for a loan in the previous year. Furthermore, institutional lenders offer 66% approval rates, which are the highest of any other lending entity type.

Moreover, the approval rate of 85% for merchant cash advances is the highest among small business funding types. Lastly, only 48% of small businesses are able to have all of their financing needs gratified.

In light of this information, let’s take a quick look at some of the common challenges businesses have to face in order to acquire a loan.  

1.    A Good Business Plan

Businesses are often required to deliver a good business plan. Without a business plan, many lenders would often refuse to offer you a loan as they seek a better understanding of your proposal. Therefore, the business plan for lenders is a vital source of information to consider your request.

It allows them to judge whether your mandate is adequately directed and focused on delivering real-life results.

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Lenders also go through your business plan to determine your venture’s profitability and its ability to face the existing competition in the market.

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Therefore, a resolute business plan takes considerable research and a comprehensive study of market forces and opportunities that have to be backed by reasonable justifications and accurate evaluations. 

2.    Financial Documents

Lending institutions also obligate you to provide them with all the relevant documents so that they can study your case in detail and then pass judgment on your request. Some of the major documents that you are required to deliver include: (requirements may vary)

  • Balance Sheet, Cash Flow Statement, and Profit & Loss Account for the last couple of years, certified by a Chartered Accountant
  • Proof of identity of the loan applicant (Voter’s ID, Driving License, Passport)
  • Proof of Educational Qualification for the Highest Professional Degree acquired
  • Proof of Address (Utility bills, Ration Card, etc.)
  • Establishment/Trade License/Sales Tax Certificate for the proof of continuation of his profession
  • Bank Statements for the last six months or Bank Passbook
  • Most recent Income Tax Return as well as computation of income
  • Two passport-size photographs
  • Information regarding other debts and loans
  • Accounts Receivable Aging and Accounts Payable Aging

3.    Ignorant About Types of Loans

It might come as a huge surprise, but many business owners are often unaware of the different business loans and available options.

Thus, this lack of awareness results in a poor understanding of how they operate and how to manage

properly. Common types include:

  • Business Line of Credit – Provides access to funds up to your credit limits.
  • Equipment Loans – Help you to buy equipment for your business.
  • Invoice Factoring – Sell invoices to a factoring company that collects from the customer when payment is due.
  • Invoice Financing – Invoices are used as collateral to get cash in advance.
  • Merchant Cash Advances – Receive a lump sum of cash upfront that you can use to finance your business. 
  • SBA Loans – Small Business Administration guarantees loans that are offered by banks or other lenders.
  • Term Loans – A common form of business financing that has to be repaid with interest over a predetermined period.
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4.    Lack of Collateral

Some lending authorities require that you provide them with collateral. The collateral serves as a safety and security measure for lenders against fraudulent borrowers or those who are unable to reimburse loan payments.

However, in such a case, you can always look for loans that don’t ask you to present collateral in the first place. Nevertheless, loans backed with collateral are easy to attain and take less time to acquire.

5.    Large Debts

If you already have large amounts of unpaid debts, then many lenders would not consider offering you a loan. This is because they tend to become wary about your commitment and ability to pay back the loan in the predetermined term.

Since you already have other loans to pay back in your lifetime, the best approach is to get rid of your debts first and then seek a loan. 

6.    Low Incomes

Businesses with little to no turnover have trouble acquiring business loans. This is due to the fact that many institutional lenders favor those with higher incomes.

Low-income businesses are not preferred because they are then put under a lot of stress to pay back the loan with their limited earnings.  

7.    Meager Research

If you want to apply for a business loan, then you need to understand all the requirements first.

Furthermore, you should also study the market and find out about all the available options that you can avail of before taking action.

It is vital that you weigh in all the options and make an informed decision; otherwise, poorly managed or planned business loans can hurt you in the long run. A student seeking help is also required to perform a substantial amount of research in order to deliver a well-rounded paper.

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8.    Poor or Insufficient Credit History

Poor credit history or insufficient credit history can also hurt your chances of acquiring a loan. New businesses that have just started find this quite troublesome as their credit history is almost a clean slate. This makes it difficult for institutional lenders to decide whether to agree with your request or not.

9.    Zero Expert Advice

For acquiring a business loan, it is best that you seek professional assistance. Professionals can help you by providing their expertise to make an informed decision and stay safe from financial traps that can hurt you badly in the long run. They can also help you acquire better options that are more feasible and suitable for your venture.

Conclusion

It is quite obvious that acquiring a reasonable and personalized business loan that offers you maximum utility for your venture’s needs is a highly strenuous ordeal. You might come across many rejections that slowly start to grind away at your spirit and motivation and are capable of shattering your self-worth completely.

On a final note, I would like to recommend that you keep on looking for solutions and ask for better options instead of signing into a deal or contract that can hurt you immensely in the long run. For now, I wish you all the best in your future endeavors and advise you to perform widespread research to find the perfect business loan that matches your requirements with ideal settings.  

Author Bio

Stella Lincoln currently works as a Sr. Research Analyst at Crowd Writer. She loves to travel and explore the beauty of mother earth. During her free time, she likes to read autobiographies of public figures and watch documentaries.


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