Loan rejections are not as uncommon as people would like to believe. However, loan rejections can be discouraging and frustrating for new and small business owners and can prevent them from growing or remaining competitive. Fortunately, a bank loan is not the only option for funding operations and growth projects.
What Causes Loan Rejections?
Banks reject loan requests for a number of reasons. A business can be declared “unbankable” for having low credit ratings. Unfortunately, many new businesses fall into this category, and it becomes a Catch-22. New businesses need funding to get a stronger foothold in the marketplace and improve their credit ratings, yet they can’t get funded because of their current credit. In other cases, businesses do not have an established record of strong sales, and banks see this as too big of a risk for a loan, on the chance that a business will be unable to repay the balance due to low revenue. Overall, securing a bank loan also requires a lot of collateral, which many small businesses and start-ups do not have because they are running lean operations to minimize costs. Businesses can also reach the limit as to how much a bank can lend.
Some Alternatives Don’t Work
Loan rejections cause business owners to seek alternative funding methods, but not every solution is the right fit. Merchant cash advances, for instance, offer an injection of working capital with high interest rates, often leaving businesses with large balloon payments when the terms end. Those special “introductory” lines of credit may seem inviting, but the interest rates can skyrocket after only a few months, and they have low spending limits. There is no need for businesses to jeopardize finances by jumping on the first alternative that comes along after a bank turn-down.
Funding that Grows with Your Business
There are two forms of alternative funding which do not place debt on the books and also grow with your business. The first is accounts receivable financing or factoring. Accounts receivable financing converts unpaid invoices to cash. Instead of waiting up to 90 days to receive revenue, accounts receivable financing has a turnaround of 24 hours. The second is asset-based lending. Asset-based lending creates a source of working capital by unlocking the value of assets such as equipment, vehicles, owned facilities, and more. As your business grows, as new equipment is acquired, and as receivables increase, so too does the amount of financing available.
If you want to sidestep the hassle of traditional loans and avoid loan rejections, contact the experts at FSW Funding. Our team specializes in working capital solutions designed to help businesses grow and thrive in today’s competitive marketplace.