One of the leading causes of the failure of small businesses is the lack of capital. For your small business to run smoothly, you need to have enough money. You will have to purchase inventory, hire employees and expand your business. Small business owners find it hard to acquire credit facilities. It makes it challenging for a business to survive. There are many reasons why a financial institution may deny your small business funding.
When a bank lends money to a business, it must get it back within the agreed period. However, that can be hard when there are tough economic times. Banks will refrain from lending to small businesses because it will be hard for such companies to pay back the money on time.
Small businesses do not have enough assets that can be used as collateral to obtain financing. Most of the financial institutions require insurance before completing the transaction.
A robust top-level leadership also increases the chance of a business to get loans. A good leadership team will lead to the long term success of a business.
When you are just starting, you will not have any credit score. You have to keep doing business to increase your credit score. Most of the financial institutions have increased their credit score standards. Small businesses generally do not have the required credit score. For a business to qualify for a bank loan, they will need a credit score of at least 720. That score can be be unreachable for small businesses especially when they are still new.
Insufficient operation history
Most banks give priority to businesses that have a long track record. Banks require stable track record profits for a specific time. Without an operating history of a significant period of time, the loan request for a small business is likely to be denied.
Business owners are required to provide personal guarantees to get a loan. The owner has to be personally liable when it comes to paying back the mortgage. It can be difficult, especially for those who are still struggling to keep up with their business expense every month.
Lack of consistent cash flow
Your cash flow will determine whether you get the loan or not. Financial institutions prefer a business with steady cash flows. It will be hard for a small business to show the required consistency in cash flow.
These are just some of the reasons why it is hard for your small business to get the funds it needs. Luckily, there is something you can do to access credit from a financial institution.
What do you do when a financial institution declines your request for a loan? One of the ways is by purchasing a shelf corporation. Make sure you buy an aged corporation, so it increases your chances of getting funding. Do your due diligence when purchasing the aged corporations for sale to avoid getting scammed. The best shelf company is one that does not have any pending liabilities.