At some point, a small business will need some additional funding to make its vision become a reality. This can be done in many ways. Some of the options include grants, personal financing, and reinvesting profits. Another popular choice is small business loans, however, attempting to get your business funded this way may come with some obstacles. Keep in mind that these roadblocks are not insurmountable, but they will take a little innovative thinking to conquer.
1. Time in Business
When a business hasn’t been in business for more than three years, it’s often too young to get the larger majority of the funding necessary to take off faster. Banks and mainstream lenders want to know that a business is being maintained and successfully operating before investing in them, because banks are businesses too. Small business loans and funding programs for Hispanics are among the options for getting funding.
2. Collateral
Having collateral could make the difference in securing a business loan and not. Ideally, something like commercial property would be sufficient, but many small business owners don’t have that option. A risky choice would be to offer up personal property. But this should only be done with very careful consideration. A crowdfunded loan or a loan from personal relationships may be a safer bet when it comes to getting over a collateral hurdle.
3. Low Credit
Having little to no personal credit or bad credit can really cripple your chances of getting your business funded in a traditional way. Any decent lender is going to want to see a credit score. It would be preferable for you to have business credit, but it’s just not realistic if you’re just getting your business off the ground. One way to start building business credit is to take out a business credit card or trade credit with vendors or suppliers you use.
4. Long Loan Process
Far too often, mainstream lenders take their sweet time before actually handing over the funds. It could be months before a bank gets to your loan application, but most businesses need the capital when they ask for it. Suffering a long small business loan application process just isn’t always a sustainable model. To combat this, you can apply for business grants or work with smaller institutions like credit union.
5. Little Invested Capital
If a bank feels as though you haven’t invested enough capital into your business, they may deny your loan application. Banks are looking to see that they won’t be the only ones to take a hit if things don’t pan out optimally. They want to know that you have also incurred a substantial risk and that you have some skin in the game. Banks are interested in whether or not you can actually pay the loan back based on what you’ve already invested.
Funding a business is a deeply nuanced affair. It’s a fine line to walk in terms of eligibility, dependability, risk, and business acumen. Just keep in mind that there are multiple paths to get to any particular goal. There’s no reason that these obstacles have to hold your business back from greatness. Don’t be afraid to think outside of the box and speak with others in your industry that have already been where you are.
