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Factors that Make Getting Small Business Lines of Credit and Loans Hard to Get

There’s no denying the importance of regular cash flow to a small business operation. Having a positive cash flow is critical to your company’s survival. You not only need money to function on a daily basis, but you never know when you’ll need a quick infusion of money to see you through a temporary crisis or dry spell. Many business owners depend on external funding to save their companies like But they also need money to expand and take their businesses to the next level. Although traditional banks readily court small companies in their marketing efforts, loans and lines of credit for small businesses can be extremely challenging to obtain.

To qualify for small business financing from a commercial or local bank, there are several hurdles to clear:

  1. Number of years in business. Most traditional banks won’t risk lending to businesses with no proven track record, such as being in business for five years or more. If you’ve been in business for less than five years, your chances of securing a loan or small business line of credit are low. In addition, bank lenders expect businesses to show excellent cash flow, profits, and revenue to even consider your application.

  2. Less than perfect credit. If you don’t have excellent business credit and sometimes personal credit scores, you may want to skip the trip to a traditional commercial bank altogether. Most large financial institutions employ strict algorithms to weed out undesirable applications, and a low credit score (A bank typically wants above a 700 personal credit score from all owners) often means immediate rejection. While there are other criteria banks will use to scrutinize the health of your business, you likely won’t make it past the credit check if your credit is below 700.

  3. Lack of collateral. Collateral provides lenders a way to protect themselves if your business defaults on its business loan. That type of business loan is called a secured business loan, and secured business loans are much easier to get, but it is so rare for business owners to have collateral until they have been in business for a long time. Examples of collateral include owned cars, real estate, stocks, bonds, accounts receivable (discounted), and more. Without significant collateral to sufficiently cover the loan or small business line of credit, lenders may not approve the loan unless you have everything else they are looking for.

  4. Personal guarantees will be required. In many cases, banks will require a personal guarantee before lending money to a business. This guarantee makes you the borrower and personally responsible for repaying the loan. If you have trouble repaying, the bank is permitted to collect funds from your personal assets, such as bank accounts or your home. Even if you think you have a tremendous business, the bank will want a personal guarantee. A no PG business loan is often seen once a business reaches the $10 million per year benchmark, and even then, the bank will try to require a PG.

  5. Inadequate cash flow. Steady cash flow is critical for running a successful business, and banks look at it to determine if you can repay the loan. If you have insufficient cash flow, it isn’t easy to get a bank loan since the bank considers it an essential factor when determining whether you can make loan payments.

  6. Small loan amounts. Finally, you may run into situations where the amount of funding you require is not worth the giant bank’s time and efforts. So many times, business owners believe they deserve more money than a bank is willing to qualify them for.

In these cases, small business owners turn to alternative lending solutions for loans or small business lines of credit. Most small businesses in the last 10 years are now using alternative lenders, like instead of a commercial or local banks.

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