Common Challenges Faced by a Small Business While Seeking Funds

Running a business comes with a number of hurdles and challenges for a business owner. One of the most important and common issues for business failure is lack of capital to keep the business in operation. Educate yourself and understand the small business challenges in financing to avoid making these mistakes.

1. Lack of Capital

• This is an important reason why start-ups often fail. The business owner doesn’t have a credit history or a track record that can help the lender evaluate the business and its creditworthiness. Having no track record does not mean that the business has no merit; it just means that the lender does not have anything to evaluate or compare it with. The lender needs to evaluate whether you can use the credit successfully. A study shows that business owners who have a better understanding of their business credit score are 41% more likely to get a business loan. Certain you need to keep in mind while asking for finance for your business:
• The track record and business credit line will take time to build.
• Analyze your business credit card and credit score.
• It is easy to get qualified for a small credit value so maintain it and start building a good business credit profile. Make sure that you have good credit behaviour.
• Try to get trade credit from your vendors and suppliers; it is one of the great ways to build a solid credit profile. You can show your suppliers and vendor’s credit track report as a good history to your financer.
• Build a personal and business balance sheet supported by the income tax paid to justify your track record.
• Create a detailed small business challenge plan that focuses on scalability, market size, product development, competition, and marketing strategy. This road map will help you to drive smoothly for the future. The idea is to anticipate challenges and work towards strategies that can help you cross these hurdles.

2. Difficulty in demonstrating you have the income to service debt

• The financer always wants to know about your ability to service debt. They are more focused on whether you can make periodic payments or not? It is unlikely they will approve your loan if you and your business do not meet their income bracket or cash flow requirements.
• There are many other sources of capital that do not require the same credit details.
• A microloan can be a good option for you if you have the ability to leverage a small amount to produce a big result.
• Crowd funding can be another option if you have a solid business idea.
• Spend time to create a solid pitch and presentation which can motivate the crowd to donate.

3. Understand your financial reports

• A common small business challenge is that some entrepreneurs don’t understand their financial reports. The financial report shows you the health of your business. Generally, you don’t have to be an accountant to understand it but you should be familiar with the metrics of your business accounts. Your financial report or the cash flow is critical to monitor the health of your business and it clearly indicates whether your business is ready to raise capital or not.
• If you are not very good with accounts, you can always hire a charted accountant, an expert who can identify the potential gaps to improve your business profits and maintain a healthy cash flow.
• To address the financial challenges, review, research and revamp your business plan again and again.
• Dive more into your financial report to understand the numbers and to avoid any financial challenges in the future.

Overspending, a poor capital structure and lack of reserve funds are the common reasons why a small business owner fails. According to the Small Business Association, around 44% of small businesses survive for at least 4 years and then the business owners fail due to the immense financial challenges faced by them. So before seeking finance, try to work on the weak areas of your business. It is not that difficult to eliminate these small business challenges if the business owner exercises little caution and invests his time wisely to focus on the above tips.