Huntington Beach, CA: According to Bloomberg, 80 percent of small businesses fail within the first 18 months. Some fail because their products do not fit current market needs, others because they do not adequately differentiate themselves from established competitors, and others because they do not effectively communicate value propositions to consumers. Of course, startups would in many cases be able to fix those problems, if only they had time.
The Increasing Difficulty of Securing Funding
Although business owners have access to a wider variety of financing options than ever before, finding capital is becoming increasingly difficult. Referencing a survey of small business owners–The Small Business American Dream Gap Report–Levi King (CEO of Nav), writes in Entrepreneur:
“Within the previous year, the survey revealed, 20 percent of the small businesses surveyed said they had considered shutting down, primarily because of lack of growth or cash-flow issues.”
Why Businesses Have Difficulty Obtaining Bank Loans
Banks fail to approve small business loans for a variety of reasons, including the following:
- Poor credit history: the personal credit threshold for many business loan products is around 660; banks typically have a higher score threshold of around 720. Traditional banks and some privately-owned finance companies have a preliminary scoring system based on running a credit check on the individual’s credit first. This is the first hurdle in getting approved for a loan. Poor personal credit most often stops the review process before any real underwriting has taken place on the business.
- Time in business: the magic number for time in business is 2 years. Why is this? Because most businesses fail within this time period. Not only is time in business important, but also profitability. It is not good enough to simply be in business for two years. Banks look to see at least two consecutive years of profitability on the business tax returns. Business tax returns are the most conservative numbers for the business (because of the natural tendency to keep profits down to avoid paying taxes), and thus, are the numbers used when applying for a bank loan.
- Historical Debt Coverage: banks frequently fail to approve loans because business owners do not have the necessary debt service coverage for the loan when they apply. Banks look back in time when determining whether or not the business can afford the debt. This in contrast to looking at projections and possible increase in profitability as a result of using the funds provided from the loan to grow the business.
Are There Any Financing Options Other Than Banks?
Fortunately, there are forward-leaning companies that help businesses secure financing. These groups are private funding companies providing asset based loans and working capital products with fewer restrictions and qualification hurdles to jump through. These companies are the cavalry to the rescue for many business owners. Without the second tier, private money programs in the marketplace, many more business owners would have to close up shop. Connecting business owners with this second tier market is what Huntington Coast Capital was formed to do. We are on the side of business owners and help them navigate the secondary markets when the banks say, NO!
Companies like Huntington Coast Capital succeed for 3 principal reasons:
- We are unbiased in providing business loan options and comparisons;
- We serve a broad range of industries; and
- We specialize in securing loans for businesses that have been turned down by the bank.
If you’ve been turned down for a bank loan and want to learn more about our innovative financing options, contact us today.
Entrepreneur: Five Reasons 8 Out Of 10 Businesses Fail
Business News Daily: 6 Factors That Keep You from Getting a Small Business Loan
Huntington Coast Capital: Why Us?