Cash advances are raining down on small businesses but good credit can still be difficult to secure.
Small businesses are securing more financing than at any time post-recession according to the latest Biz2Credit Small Business Lending Index.
The still dismal approval rates at big banks have none the less now hit a post-recession record of 27.7%.
Smaller banks are even more friendly, giving the OK on nearly half of all loan applications.
This is all happening after the Federal Reserve announced the first rate cut in years. This isn’t great news for investors, but for small business owners looking to secure financing, it’s a gift.
But like most gifts, there’s a catch.
Why small businesses find better success with alternative financing
Just because something is a record doesn’t mean it’s necessarily good.
Batting 277 might be elite in the MLB, but for small businesses looking for fast cash, an over 70% failure rate when borrowing from big banks means bigger delays.
These delays could kill your small business entirely. In fact, it happens all the time.
Big banks don’t have time to worry about that though. The calculation for them is simple. There are enough borrowers with excellent credit to make their margins. No need to take risks when you’ve already got more than enough to eat.
But what about solid small businesses with slightly shaky credit?
The big banks simply aren’t interested in doing the kind of detailed risk assessment necessary to make these kinds of strategic investments. In fact, they’re not doing any real assessment at all.
Why small business financing is denied
Surprisingly small business financing isn’t all about good or bad credit. Your credit score isn’t even the number one factor.
As we’ve explained the top reason large banks will deny a cash advance request is actually clerical. Many business owners simply fail to file all the correct paperwork.
Again, the calculus is simple. Big banks have enough volume to throw out applications on a technicality. Spending resources to see if your small business is actually investment-worthy makes no sense. Literally.
And in some cases, this is completely rational. You can see the logic. If you can’t even get your ducks in a row when asking for cash, maybe you aren’t organized enough to pay it back either.
But for most small business owners with solid business plans, the omission of one obscure document isn’t actually a good basis for denying funding.
Avoid small business failure
It is important to be organized regardless of where you look for financing. Obviously. And we prepared this handy checklist for small businesses ready to start that process.
But there’s another reason to go through the financing process.
Bringing together the necessary documents is a good way for business owners to run a quick and dirty internal audit. Take the general temperature of your company.
If you’ve been hype focused on customer service or building out your infrastructure, taking a quick look under the hood is a part of general best practices.
Often business owners will catch potentially costly mistakes during this process that saves money. The expiration of a necessary permit. A potential tax write-off that was missed. Lots can be lost in the mire as CEO’s begin wearing more and more hats.
All this is tremendously helpful when you’re looking for financing in such a strong market.
The rare combination of low-interest rates in wild growth means it’s literally never been a better time to invest in yourself. And when you do, you want to be sure that investment pays off.
And if your application is denied when you know you’ve got a well-oiled machine, as always at Velocity Capital, we’re here to serve you.