Nothing is as exciting as having a business of your own. It is fulfilling and gives you, the owner, sense of ownership. New entrepreneurs have the opportunity to grow into big companies, achieving their dreams. Today, you enjoy goods and services from businesses that started small. Every business has a beginning stage.
Thriving businesses are admired by everyone. Successful businessmen inspire everyone interested in starting a business. However, most businessmen don’t talk about the exact challenges they went through to grow their businesses. Promising entrepreneurs not only encounter small challenges, but also deal with many hurdles at every business stage.
As an entrepreneur, it’s important to do all it takes for your business to thrive. One of the biggest challenges budding entrepreneurs face is small business funding. At this stage, your business still does not have a name.
Lack of connections and a name can be the reason why you might fail to get funding for your business. Here are reasons why you might fail to get business financing for your small business:
Nature of Small Businesses
Small businesses often have opportunities and ways to thrive. However, the chances are always minimal. Three in every ten small businesses find it difficult to minimize their starting and operating costs. Most of these businesses find it hard to plan for future finances such as the costs incurred during emergencies.
Several small businesses close down due to inadequate profit or lack of growth. 20% of all small business startups often consider shutting down. A survey done by the Small Business American Dream Gap reported that more than half of startups seek small business funding due to the above reasons.
According to the report, small businesses apply for loans or credit lines. One out of four small businesses has applied for loans more than once, even after being rejected. Out of those applying for loans, 20% receive regrets and 45% reapply for the loans again with the hope of getting a different, but positive outcome.
It is important to note that out of the small businesses that were surveyed, 23% had no idea or did not understand why their applications were rejected. Inadequate business funding has led to lack of hiring of new employees in about 23% of such small businesses. As a result, the businesses fail to grow.
In a bid to maintain their businesses, business owners end up using their personal savings and credit to cover operating costs and prevent shut downs. Some owners have even turned to borrow from families and close friends. The survey reported that only 36% of small businesses have successfully gained access to small business financing.
Why Your Small Business Funding Was Turned Down By The Bank
In most cases, small businesses are denied loans by banks due to poor business credit scores. Unfortunately, most small business owners do not understand their credit scores. From the survey, 75% of small business owners did not know where to search for their credit scores while 45% of them did not have an idea that they had credit scores.
Furthermore, out of 10 small business owners, eight don’t know how to read business credit scores. It is important to know your business credit score as a business owner. Banks decline requests for loans due to low credit scores. Even so, some businesses have worked hard and developed good credit score without knowing and thus do not take advantage of it.
Some business owners also believe there is no other way to finance their businesses after their loan application is rejected. Therefore, they prefer maximizing on their personal credits to keep their businesses running. However, maximizing on personal credits reduces your chances of getting loans from your bank.
The solution: Invoice Factoring
A good credit score can secure you a business loan to grow your startup. However, a good credit score is not achieved through personal and business credits. Try to minimize on these credits to get small business financing for growing your business, taking it to another level. It is possible to be in a position where you need funds urgently for your business.
Thanks to invoice factoring, you can get funds to finance your business and continue with normal business operations. If you need funds urgently, but your invoices get paid in months, you can sell a particular invoice to a factoring company at a small fee.
Factoring companies can finance your business if your loan application has been declined and your invoices due in a few months. Before you start invoice factoring, identify all your clients with due invoice payments. A factoring company would then look into the customer’s credit score and determine whether they are in a position to pay their debts.
You then send your invoice to the factoring company once the customer is screened and accepted; well, this happens after meeting all the requirements provided by your factor. The factoring company then pays you 80% of the invoice amount.
The remaining 20% is paid upon receipt of payment from your customer, with a small fee deduction for the service. This is the fastest way you can finance your business to keep it running.
Starting with Factoring Services
Invoice factoring, as a process, depends on the factoring company you want to successfully transact with. Generally, all you have to do is fill in an application and meet the terms and conditions provided by the company. Transactions can be easily finalized as long as your customer has a good credit score and makes invoice payments on time.
Most small businesses fail at the initial stage due to lack of small business financing. They usually experience many challenges trying to obtain loans and credits from banks. However, having credits and loans also reduces your credit score and may reduce your chances of getting any financial help in the future.
Do not think of shutting down your business without exhausting all the possible solutions. The best alternative is invoice factoring as you don’t have to wait for your slow-paying clients. Factoring companies can help you get alternative sources of funds and prevent your business from going into debts or worst becoming bankrupt.
Contact us today for more information about invoice factoring!