So many business owners just do not pursue the financing options that are based on banks. This is often because they know about or are faced with specific problems. As soon as the business owner addresses and even identifies a problem, steps can be taken to increase the possibility of being approved for regular business financing.
Many different financing problems can appear. However, some are much more common than others. Be sure that you learn all that you can about the following and you will have a much higher possibility of actually being approved.
The lenders use debt-to-equity ratio when they decide whether or not someone qualifies for home purchases. In a similar way, the business lender is interested in how much debt you are faced with right now. When the business has too much debt, it can mean many different things. The most common one is cash flow. The business leaders are often not capitalising on various opportunities available and they try to offset problems by taking out more loans.
Another issue that is taken into account is potential bankruptcy. When lenders trust the proposed business plan or growth strategy, the most important debt is analysed. It is possible that the risk is not seen as being worth it since businesses do not own enough assets to properly repay debts as they are faced with financial hardships. Basically, for $1 in equity, businesses tend to be willing to offer a loan of $2 tops.
Cannot Afford Payments
This problem is pretty self-explanatory and is related to cash flow. When a company does not have the funds necessary and cash flow is always low, it is obvious that loan payments cannot be afforded. The idea is that the lender is interested in making sure that the borrower will afford making monthly payments. For instance, if you sell designer shirts but cash flow is really low because of low sales, it is impossible to be approved for an expansion loan.
Growing companies are often faced with problems in being able to afford monthly payments for business loans. This is because money is needed for dealing with the increasing expenditures. The debt-revenue ratio that the lender normally wants to see is 1.25 to 1.
High Down Payment Is Needed
Down payments are needed for many business loans. Similarly to when you buy a home, lenders need to see that business can manage money in a way that is going to increase equity or save equity. Financial management is always what is analysed, together with the ability that company leadership has.
Speaking about needing high down payments, it needs to be said that when the company is in a strong business growth stage, loans with such deals are often not approved since businesses need to reinvest most of the available money in growth.
Business financing is often seen as being something really simple to obtain. This is not actually the case. Conditions are stricter than with regular personal loans and businesses need to be really serious during the application phase.