By Jevon Wooden

For small businesses, capital is the lifeblood that fuels growth and sustains operations. It facilitates the acquisition of essential resources, ensures a stable cash flow, and supports expansion. However, accessing adequate capital has often been a precarious journey, fraught with challenges and complexities, that can significantly impact a small business’s trajectory.

This blog post aims to delve into small business owners’ difficulties regarding capital access, unravel lenders’ criteria, and explore innovative alternatives for securing capital when big banks say not yet.

The Issue with Access to Capital

Capital access is often the Achilles’ heel for many small businesses. At the core, small businesses lack the extensive credit history, collaterals, or consistent cash flow that traditional lenders typically seek. This makes them inherently riskier propositions in the eyes of conventional financial institutions.

In addition, small businesses often operate in volatile market spaces with a higher likelihood of experiencing financial setbacks. They might lack robust business plans, strategic financial forecasting, or have less predictable revenue streams. Coupled with limited resources and higher overhead costs proportionate to their size, these challenges can translate into significant hurdles when attempting to secure funding.

What Lenders Are Looking For

Traditional lenders, such as big banks, employ stringent criteria when assessing a small business’s eligibility for a loan. Their primary concerns revolve around the borrower’s ability to repay the loan and the perceived risk associated with the loan. Here are some key factors they consider:

1. Credit Score: A business’s credit history plays a pivotal role in decision-making. A good credit score suggests a strong record of repaying debts and is a positive sign to lenders.
2. Cash Flow and Revenue: Lenders often scrutinize a business’s cash flow to gauge its ability to repay the loan. A steady revenue stream ensures that the business can handle the debt load.
3. Collateral: Assets that a business can offer as collateral reduce the risk for lenders. They provide a safety net should the business default on the loan.
4. Business Plan: A comprehensive, realistic business plan gives lenders confidence in the venture. It should articulate the business’s vision, objectives, market analysis, financial projections, and risk management strategies.
5. Industry Risk: Each industry carries a unique set of risks. Businesses operating in industries with higher default rates may find it more challenging to secure loans.

Innovative Ways to Access Capital

When big banks decline loan applications, it isn’t the end of the line for small businesses. With the advent of technology and a dynamic financial landscape, several innovative funding alternatives are now within reach.

1. Online Lending Platforms: Online lenders have emerged as viable alternatives, offering loans with less stringent requirements and quicker approval times. Platforms like OnDeck, Kabbage (now owned by American Express), and Funding Circle provide loan products tailored for small businesses.
2. Crowdfunding: Crowdfunding platforms like Kickstarter or GoFundMe allow businesses to raise capital from the public. This approach secures funding and validates the product or service in the market, creating a customer base even before launch.
3. Peer-to-Peer Lending: Peer-to-peer (P2P) lending platforms like Yieldstreet connect borrowers directly with investors. These platforms often offer competitive interest rates and flexible terms, as they cut out traditional financial intermediaries.
4. Invoice Factoring: This involves selling outstanding invoices to a factoring company at a discounted rate. It’s an effective way to turn accounts receivable into immediate cash. KW Receivables out of Texas provides invoice factoring services.
5. Venture Capital and Angel Investors: Although more competitive and requiring a share of equity, venture capitalists and angel investors can provide significant funding and valuable business advice.
6. Microloans and Grants: Organizations like the Small Business Administration (SBA) offer microloans and grants to support small businesses. These often come with more favorable terms and lower interest rates.

While securing capital may seem arduous, it is possible with the right network and resources. It requires a keen understanding of lenders’ expectations and proactively exploring the alternative lending landscape. By embracing innovative funding solutions, small businesses can overcome capital access challenges, propelling them toward sustainable growth and success.

Contact me if I can be of assistance on your success journey. I have also written a book, Own Your Kingdom, which has helped many business leaders reframe their thinking.