Top Challenges of Borrowing Money from Lenders

Borrowing money from lenders, whether it's for personal or business purposes, comes with its own set of challenges

Businesses often turn to lenders when they need extra money to finance a new venture or to shore up their current operations. However, availing and securing funds isn’t easy as it sounds—it can be fraught with many problems or issues. That’s why in this blog post, we shed light on the different challenges business owners often face when applying for loans and the ways how to overcome such issues ahead of time. Without further ado, let’s begin.

Challenge # 1: Poor Credit History

No matter how good your reasons are for borrowing money from a lender, you’re at risk of being rejected for a loan if your credit history is poor. This is because lenders look at your credit score and credit report as an indicator of how your business has managed its credit obligations in the past and whether you can repay loans on time in the future. On the other hand, if you have a good credit score, your chances of getting a business loan are higher since this signals that you have a good credit history and you are capable of paying back your debts punctually.

Thus, in order to overcome this challenge, make sure you take steps to improve your credit score and track your debt payments. This will help you qualify for more loans in the future and reduce the amount of time it takes to get a loan. Thus, it’s also wise to examine your business credit reports before applying for a loan to guarantee they’re in the best condition possible. 

Challenge # 2: No Track Record of Your Company

Lenders want proof that you can utilise credit responsibly and without issue, so if you can’t provide the proven business track records that a lender requires, it will be impossible for them to assess if you are eligible for obtaining funding. 

Unfortunately, this problem has no band-aid solution since building a business credit profile takes time. That’s why this is a lesson learned that you really need to keep a track record or document your financial statements and other pertinent business information. By doing this, not only will you be able to show that you can manage and grow your company confidently, but also, you’re more likely to receive favourable terms when applying for extra funds from lenders in the future.

Challenge # 3: Absence of a Detailed and Solid Business Plan

Perhaps you are used to managing your business with a caution-to-the-wind approach, and it’s been working well for you; however, that’s not acceptable for most lenders. Before they go on board, they want assurance that your ship won’t sink. That’s why, aside from a business loan application, providing them with a detailed and solid business plan is a must. 

Here are the key aspects of a business plan that lenders look for when considering whether to approve a loan for a business:

a) First and foremost, your business plan must be well-organised and clear. Lenders want to know how much money is being borrowed, your plans for future growth (e.g. how your business will attract new customers and grow its sales) and how you can repay the loan. 

b) Ensure that your business plan has the following parts:

  • Business model
  • Market size
  • Competition
  • Strategy road map
  • Scalability
  • Management bandwidth
  • Marketing strategies
  • Product development and innovation

c) Be as detailed and thorough as possible. You must craft a detailed plan that anticipates your expenditures and strategies for mitigating risk in case an unforeseen event arises. Note that this is how you will entice your lenders and convince them why they should provide financing for your business. So, don’t rush it!

Challenge # 4: Limited and Weak Cash Flow

Cash flow is one of the most crucial factors lenders look into when approving a business for financing. In fact, your cash flow statement, which presents your business’s monthly income and expenses, is a required document you need to submit during your loan application process. That said, having a limited and weak cash flow is a big red flag when you apply for extra funding because this will indicate that your business is not running smoothly and you are in trouble keeping up with your debts. 

To prevent such situations, you may want to check out how you do your invoicing. For instance, it’s important that once your products or services are delivered to your clients, you have a reliable system to send out invoices immediately. Likewise, when dealing with slow payers, you should implement late payment fees or establish consistent follow-up procedures to remind them of their due dates. Overall, you must utilise new technology to your advantage so you can streamline your financial management and business operations. Make use of advanced financial tools like Moolamore to help you monitor your cash flow accurately and in real-time. 

Challenge # 5: Lack of Experience (Insufficient Time in Business)

Your experience and how much time you’ve been in business can also contribute to your ability to secure a business loan. Some lenders will only issue loans if you’ve been in business for at least six months to two years, which is fair since you also need enough time to establish good business credit. Thus, if you really need to raise funds for your startup company, many startup business loans are available. Just make sure you pay attention to the loan requirements, particularly if the company’s age is concerned. 

Challenge # 6: Lengthy Process

The process of obtaining a loan can be lengthy and frustrating. You’ll need to provide detailed documentation of your business and financial situation and undergo a credit check. In some cases, lenders may also require you to put up collateral such as property or stocks to secure the loan. 

But keep in mind that with the proper preparation, you can make the approval process go as smoothly and quickly as possible. So, always see to it that your requirements are complete and you have provided sufficient documentation to prove that you can repay the loan. In a nutshell, here are the top challenges that most SME company owners or entrepreneurs encounter when applying for extra funding from lenders:

1) Poor Credit History

2) No Track Record of Your Company

3) Absence of a Good and Detailed Business Plan

4) Insufficient and Weak Cash Flow

5) Lack of Experience (Insufficient Time in Business)

6) Lengthy Process

To Conclude

The world of funding can be challenging to navigate. As discussed in this blog, you will encounter numerous challenges along the way. However, with the right knowledge and careful preparation, you can make it work. So, don’t be discouraged—there is a way to achieve your funding goals!

If you want easy access and approval for funding, start using Moolamore! This cutting-edge cash flow tool with integration, cash flow analysis, and scenario builders can help you prepare your loan requirements seamlessly. Schedule a demo today!