Challenges When Accessing Commercial Finance

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Businesses today face numerous challenges when it comes to accessing commercial finance and these challenges can hinder their growth, expansion, and overall financial stability. We see this time and time again in the market, but many of the challenges can be overcome. Here are five key challenges we help our clients overcome when accessing commercial finance.

1. Strict Lending Criteria

One major challenge is the strict lending criteria imposed by financial institutions. Banks and other lenders have become more cautious in their lending practices, demanding higher creditworthiness, security, and extensive documentation. This can make it difficult for SMEs with limited resources or a shorter operating history to qualify for traditional loans. The stringent requirements create barriers for businesses, particularly those in their early stages or in industries perceived as higher risk, therefore providing the right context and positioning for any financial requirement is critical.

2. Lack of Security

Another challenge is the lack of collateral or tangible assets for businesses to offer as security. Many modern businesses, especially those in the technology and service sectors, may not have significant physical assets to pledge as collateral. This can make it challenging for them to secure financing, as lenders often prioritise tangible assets when evaluating loan applications. To offset this, we have seen the rise of Personal Guarantees as well as the requirement for a positive balance sheet.

3. The State of the Economy

The prolonged economic impact of the COVID-19 pandemic and other macro-economic events have made lenders more risk-averse. The uncertain business environment has led to reduced lending appetite, especially for industries heavily affected by the pandemic such as travel, hospitality, and retail. Businesses operating in these sectors may face even greater difficulty in accessing commercial finance due to the perceived higher risks associated with their operations. It is critical to extract and explain the current economic impacts in any finance application.

4. Not Knowing

Businesses seeking finance often struggle with limited financial literacy and inadequate preparation, not to mention the time it takes! Lenders expect businesses to present comprehensive business plans, financial projections, and a clear understanding of their cash flow. However, many business owners may lack the necessary knowledge, expertise and resources to prepare such documents effectively, leading to rejections or delays in obtaining finance.

5. An Extensive Financial Landscape

The number of finance products and finance providers in the market is huge! In recent years, there has been a shift towards alternative lending platforms, such as peer-to-peer lending and crowdfunding. While these platforms offer new opportunities for businesses, they also come with their own challenges. They can offer greater flexibility and accessibility, but they can also introduce additional risks and uncertainties, as they operate outside the traditional regulatory framework. Furthermore, technological advancements and the increasing digitisation of financial services have brought both opportunities and challenges to the commercial finance market. While automation and data analytics have streamlined certain processes, they have also raised concerns regarding data security, privacy, and the potential for algorithmic biases. Having a good understanding of what the business is signing up to is critical.

Overall, the challenges faced by the current commercial finance market require a delicate balance between risk management, regulatory compliance, and innovation to ensure a healthy and sustainable lending environment for businesses of all sizes. Working on behalf of our clients, we identify and secure innovative financial solutions which cater to the diverse needs of businesses across different sectors and stages of development. Try us – we are happy to help! So contact the team to see how we can help you finance your business today.