It is challenging for a newly established company to obtain a commercial bank or lender loan. Start-up business loans are the riskiest loans that a bank or lender may encounter. As a result, it’s understandable that they’re concerned about granting loans.
But in reality, it is practically impossible to manage a small business these days with out-of-pocket money. Any expansion necessitates additional working capital, whether it is purchasing inventory, hiring new staff, or opening new sites. Banks are denying loan requests from small business owners for several reasons. We’ve outlined the top ten reasons, along with some ideas on alternative finance that can potentially be a good option for SMEs.
One of the simplest methods to acquire a start-up business loan is to thoroughly design your business plan to answer all the concerns and objections that a lender may bring.
Business planning software, like Planium Pro can assist you with structuring and laying out your business plan to meet the requirements of the harshest lenders, all the work that is left for you is to simply insert the information about your company.
So, what should you do if a bank refuses your loan request for your small business? Alternative finance is one of the greatest available possibilities. Alternative finance, which originates from non-bank firms that specialise in lending funds to small and medium-sized enterprises, is available in various options that enable lenders to offer flexible conditions for owners who require capital for developing businesses. Here are several options:
This is a company cash advance service that gives you a lump sum of money in exchange for a percentage of your future credit/debit card sales. Instead of making fixed monthly payments, MCAs function with your natural cash flow, deducting a tiny percentage of your credit/debit card sales until the cash advance is fully repaid.
People you know may be able to help you raise startup capital. A direct loan or an equity stake in the company (stock ownership) may be possible. If the collateral is an issue, look for someone with personal assets which is ready to promise them to help get the firm started. You could possibly be able to find someone who will provide a personal guarantee to the lender. The drawback here is that money and personal relationships don’t often mix well, and it’s vital that everyone involved discusses the payment terms and expectations explicitly ahead of time, or things might become messy.
These unconventional loans are intended to make finance available to a broad spectrum of small businesses. The number of loans available in the industry varies. A mom-and-pop shop, for example, may require $5,000, whereas a fast expanding company may need $500,000.
You might consider credit card financing for your firm as a last resort. This is the last option because interest rates are expensive, and if your sales do not take off soon, you may find yourself in a financially tight spot.
The alternative funding industry is expanding and becoming more accepted by mainstream businesses. Alternative lenders are filing for IPOs, receiving backing from some of the world’s largest corporations, and providing previously unthinkable amounts of credit to SMEs.
If everything else fails, start small, remove what you don’t need, and keep working on it. Being inventive and persistent can help you come closer to launching your business. Best of luck!