small businesses

3 Financing Challenges Facing Small Businesses

Running a successful small business is hard work. Finding the right financing to thrive and grow in today’s economy can be challenging. However, the current economic landscape poses a few extra challenges for new and existing small businesses, but there are solutions for entrepreneurs to get access to working capital.

1. Tightening Credit Requirements

One of the biggest hurdles facing small businesses is qualifying for financing. Traditional lending channels have been raising their requirements on loans. In addition to arbitrary loan board decisions, lenders are basing approvals for financing on revenue, the amount already borrowed, and credit ratings. Now, lenders are focusing on tightening credit requirements for small businesses, due to pending trade agreements on international commerce and possible interest rate hikes from the Fed. This poses a problem, because many businesses already have debt on their credit reports due to previous loans. Additionally, new businesses may not have the credit ratings to qualify for loans, even if they do not have any red marks on their credit reports.

2. The Election Cycle

Believe it or not, the four-year election cycle influences business financing. Small businesses are hesitant to take on debt from loans during an election year, because they are unsure how the next four years will impact the economy, taxes, interest rates, and more. For similar reasons, lenders are hesitant to approve loans for entrepreneurs because they are unsure of the risk level for investing in small businesses. In short, the election cycle makes both lenders and small businesses hesitant.

3. Growth Opportunities

Business growth ties into the above two points. This year presents a number of growth opportunities for businesses. If a business can get a stronger foothold this year, then it can weather whatever the next four years bring. At the same time, business growth hinges on getting the right financing, which is becoming more prohibitive with the way traditional lenders are raising their requirements. Fortunately, there is a solution that allows small businesses to sidestep all three challenges.

A Financing Solution for Small Businesses

Entrepreneurs can build up finances from within by using invoice factoring. Invoice factoring is a debt-free working capital solution that converts unpaid invoices to cash. This allows entrepreneurs to boost cash flow and build up capital reserves for growth, take care of overhead, pay down existing debt, or anything else their businesses need. To learn more about using factoring as an alternative to traditional loans, contact New Century Financial today.