Why do SME find raising finance difficult?
UK small business owners face many obstacles when it comes to securing lending. In this blog post, we'll discuss some of the most common obstacles and how to overcome them.
Collateral
One common obstacle is a lack of collateral. Many small businesses don't have the kind of collateral that banks require, such as property or vehicles. This can make it difficult to get a loan, even if you have a strong business plan and good credit. One way to overcome this obstacle is to offer other forms of collateral, such as personal guarantees from yourself or other directors of the company. You can also look for specialist lenders that don't require collateral, such as peer-to-peer lenders.
Concerns about credit risk
The second common obstacle is a lack of business history. If you're a new business, you may find it difficult to get a loan because you don't have a record of accomplishment of success. Lenders will want to see that you have a good chance of repaying the loan, so they'll often require at least two years of financial statements. One way to overcome this is to provide detailed financial projections for your business. If you can show that you have a sound business plan and a good chance of success, you may be able to convince a lender to give you a loan.
Credit History
The third common obstacle is poor/bad credit history. If you have missed payments or defaulted on loans in the past, it will be difficult to get a loan.
Lenders are often reluctant to give loans to small businesses with poor/bad credit histories. One way to overcome this obstacle is to get a co-signer with good credit. A co-signer is someone who agrees to repay the loan if you default. This can help to convince a lender to give you a loan. If you're a small business owner, you may face some obstacles when it comes to securing lending. However, there are ways to overcome these obstacles.
Lack of information about the SME and its management
Without proper management, SMEs will not be able to achieve their potential. One of the reasons for the lack of information about SMEs is that they are often family-owned and operated. This means that the management style is often informal and there is no formal training or education in management for the owners and operators. This can lead to poor decision-making and a lack of understanding of how to run the business in a profitable and sustainable way.
Lack of financial statements
When it comes to small business lending, one of the biggest obstacles is the lack of financial statements. Without these statements, it's difficult for lenders to get a clear picture of the business's financial health. This can make it difficult to determine whether or not the business is a suitable candidate for a loan.
There are a few reasons why small businesses may not have financial statements. One reason is that they simply may not have the resources to prepare them. Another reason is that they may not understand the importance of financial statements and how they can be used to secure financing.
Without financial statements, small businesses are at a disadvantage when it comes to securing financing. This is why it's so important for small businesses to understand the importance of financial statements and to make sure they are prepared before they apply for a loan.
By offering collateral, providing financial projections, and getting a co-signer, you can increase your chances of getting a loan.
These obstacles are much greater for small businesses than for medium-sized companies, which have a record of accomplishment in business, available financial statements, management accounts as well as projections and represent a lower probability of default.
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