Top 5 Challenges Small Businesses Face When Seeking Financing

by | Oct 4, 2019 | Alternative Business Financing, Business Financing, Financial Advice | 0 comments

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Small Business Funding has worked with thousands of small businesses seeking funding for their business.

We’ve seen and heard it all throughout the years.  We know firsthand the challenges small businesses face when seeking financing.  Our goal is to fund every business in need but realistically this is not the case.  There are several factors which may prevent you from getting funded.  At the very least they may make it more difficult.

Here are the top 5 challenges small businesses face when seeking financing:


1 – Not Enough Time in Business

Unfortunately this is a catch-22.  You need money to start your business, yet you need time in business to get a loan.

It’s very difficult to get a loan from any lender, a traditional bank or an alternative lender, if you haven’t been in business for a certain period of time.  For example, Small Business Funding requires you to be in business for at least 3 months.

However if you’ve recently bought an existing franchise, that’s been in business at least 5 years, we may be able to get you funding after 2 months of ownership.

Why is time in business important?  To minimize the lenders risk.

Small Business Funding and our network of lenders offer funding options that require no collateral.  These are high risk funding options.  If there’s no history, then there’s no way to ensure the business will make enough money to pay back the financing.

If you’re a startup who needs funding to get your business off the ground, you may want to look into business grants, angel investors, or crowdfunding.


2 – No Business Bank Account

Having a business bank account is an important part in the underwriting process.  It’s used to verify your business revenue and time in business.  According to a survey by Nav, 70% of small business owners seeking a loan were turned down because they didn’t have a business bank account.

The number of months you need a business bank account before you can get approved for funding depends on the lender.  But in most cases, alternative lenders will require 3 – 6 months, while a traditional bank may require the 12 most recent months.

If you don’t have a business bank account, sign up for one as soon as possible.  Then after three months, if you have consistent, healthy revenue over that time, you will have a stronger chance to get approved for funding.

In addition to needing a business bank account to get approved for funding, there are other important reasons in having a business bank account.  Some of those reasons are to keep clean and accurate bookkeeping, for IRS purposes, and it’s required if your business is incorporated.

There are a few funding options, such as an SBA Loan or Term Loan, that don’t require bank statements for the pre-approval.  However, once you’re pre-approved, a lender will request your bank statements.


3 – Inconsistent Revenue Stream

One of the first things a lender looks at on your banks statements is whether your revenue stream is consistent.  Big swings in your revenue, especially if your monthly revenue is on the lower side, is a red flag.

This is going to be a common theme, but for the lender, it’s all about minimizing risk.

These fluctuations may not be as big of a concern depending on: the industry, how much revenue you earn on the low months, and the lender.

For example retail may experience large swings in monthly revenue around specific events or holidays such as back to school or holidays.


4 – Change in Personal Life

A sudden change in your personal life may affect your chances of getting approved for a business loan.

One of the most common life changes that cause difficulties in getting approved for funding is a divorce.  There are several reasons for this – your spouse may not pay the bills in your name, effecting your credit score or part of the business may be given to your spouse in the divorce settlement.

A separation from a business partner, an unexpected disaster, or an illness in the family where you may be putting a lot of the medical expenses on your personal credit card, are all situations we have seen firsthand.

These sudden changes that affect your credit score or business ownership status may put you in a higher risk category with a traditional bank.

Luckily, Small Business Funding may be able to provide funding in these situations, as long as you have a healthy business which has been in operation for, at the very least, 3 months.


5 – Low Credit Score

For most traditional banks and lenders a low personal credit score is another red flag.  Their thinking – if you can’t manage your personal financing, then you can’t manage your business finances.

While that may be true with some business owners, sometimes situations happen that caused your credit score to be low.  We discussed a few in the “change in personal life” section of this post.

While a low credit score may limit your options, this is not a dead end, you still have options.  These options you will most likely be a higher cost than if you had excellent credit.

Depending on when you need funding, there are ways to improve your credit score.


When applying for funding with Small Business Funding, there are several factors that go into the underwriting process.  But before we can even get to this process, the must have’s are a business bank account and at least 3 months (in most cases) in business.