Are you a small business owner in Ontario trying to secure financing for your business?
Many entrepreneurs find it challenging to get the funding they need to not only start, but to grow their businesses successfully. While obtaining sufficient funding may seem like a daunting or virtually impossible task, you should know you are certainly not alone in your struggles and that support is available to you.
Why is obtaining finance a significant issue for new business owners?
Starting a business often requires a significant amount of capital. This capital is required to cover a wide range of expenses, including purchasing costly equipment and inventory, hiring employees, and general marketing of the new business.
In this article, we’ll explore several of the most common reasons you might have difficulty obtaining financing for your Ontario business. We’ll also offer advice on overcoming these obstacles, so that you can get the capital you need to make your business venture a success.
Below are seven of the most common reasons you might be having problems obtaining financing for your Ontario business:
1. Insufficient initial savings
It can be very difficult to finance a business with limited personal savings, which is, unfortunately, something that many entrepreneurs struggle with. Without sufficient personal funds, a business may not be able to fully operate and could struggle to get off the ground.
This can be a major obstacle to obtaining financing from external sources, as this may cause lenders to view the business as a high-risk investment. Therefore, entrepreneurs must always carefully assess their financial situation and effectively plan for the start-up costs of their business.
2. Lack of steady cash flow
Often, small businesses that fail to demonstrate consistent cash flow are denied funding, as they are considered high-risk investments. Banks are far more likely to favour small businesses that have already secured a stream of steady revenue on a monthly basis.
3. Insufficient collateral
When applying for a loan, new entrepreneurs often are required to use their own assets as collateral (e.g., their house or car). Banks are careful to minimize risk, so if a borrower does not have solid collateral to offer (also known as being “asset poor”), it is unlikely that the bank will approve the loan. In fact, an insufficient lack of collateral is one of the most common reasons why businesses fail.
4. Poor credit history
Most small businesses still have credit scores negatively impacted by the recent financial crisis. Generally, a business will require a credit score of at least 720 to be considered for a loan from a bank. This can be a high bar for many small businesses, particularly those that are just starting out and may not have had enough time to establish a strong credit history.
5. Excessive debt with other lenders
Needless to say, banks are often hesitant to lend to businesses that already have current debt with alternative lenders. Usually, they will not even consider lending to a business that has already obtained funding from another source. The reason being many entrepreneurs will seek credit from a variety of lenders, particularly at the beginning stages of their venture; this can be a significant obstacle when applying for financing from the bank.
6. Weak business plan or credibility
A poorly orchestrated business plan or weak credibility will often fail to give banks or investors the assurance they need regarding the likelihood of business success. Many new entrepreneurs and owners of small businesses do not possess the proper credentials, reputation, or track records required to secure these loans, which can be rather discouraging.
7. Unfavourable economic climate and market conditions
Banks may be hesitant to lend money to a business if they feel that the current economic and market conditions will prevent them from receiving their loaned funds in the appropriate time frame.
While this certainly isn’t fair to owners of new and small businesses, as external factors are out of their hands, it’s important for these entrepreneurs to carefully assess the economic climate and market conditions before applying for a loan.
Consider Alternative Financing
If a traditional bank loan isn’t an option for your small business, then alternative financing may be a good way to obtain the funds you need to grow your company.
Alternative financing for your start-up business includes private lenders, which typically offer a range of loan products such as term loans, investor loans, lines of credit, and equipment financing to meet the unique needs of small businesses.
Additionally, private lenders may offer more flexible repayment terms and lower interest rates than other types of lenders. Overall, private lenders can be a good option for small businesses looking to secure financing to grow and expand their operations.
Let Our Experts at Canadalend Help You Achieve Your Business Goals
Obtaining proper financing is critical for the success of any new business. Whether you’re seeking commercial financing services to kick-start your business in Ontario, or are looking to give your existing business a boost, our private lenders and mortgage broker experts at Canadalend.com can assist you in securing the best commercial mortgage rates in the province.