Alternative SME money is a form of funding that is not provided by traditional lenders such as banks. Funds are sourced from private lenders, pooled investment schemes, wholesale financiers, peer-to-peer, online, subscription-based loan funds, contributory loans and more. Each of these is slightly different in terms of the loan solutions they offer and, as with traditional small business finance, you should research the pros and cons to determine if these options will suit your business needs.

Application Denied – Understanding Why Banks Won’t Lend to You and What You Can Do About It

Small business owners are always at a disadvantage when it comes to seeking money from banks. It’s a sad fact, but it’s true. The reality is that banks require collateral 100% of the time for loans under $1 million, but only 63% of the time for loans of $100 million or more. Likewise, personal guarantees are typically required for loans below $5 million. That means as a small businesses owner looking for less money, you actually have more barriers to get through. If your business can’t put up equipment, buildings, inventory, or accounts receivable against the loan, the bank has few if any options to secure repayment. That makes the deal unattractive and significantly decreases the chances they’ll approve the loan.

10 reasons the Bank won’t Lend you Money

It can be frustrating to be denied again and again by banks when the application seems totally reasonable to you, especially if they’re not clear about their reasons for rejection. There are an enormous number of reasons banks will deny financing, and each case is unique, but here are ten of the most common.

1. Unstable cash flow

Cash flow is incredibly important, and to the bank, it’s a strong indicator of your ability to repay the money they loan you. Poor or unstable cash flow can be a huge turnoff to traditional lenders. That can be a big problem for some businesses – especially seasonal ones – who see their cash flow come in waves.

2. Insufficient security

Banks require collateral to satisfy risk management protocols, making it mandatory to secure a loan. Unfortunately, if you can’t offer much collateral, it represents a serious risk management problem for the bank, often resulting in denials. This can be a huge obstacle to overcome for most small businesses.

3. Overload of debt

Banks have lowered their credit exposure to small businesses, meaning there is simply less financing to go around for all the small businesses applying for it. That makes it much harder to get approved as the entire ecosystem is significantly more competitive. That higher competition means banks can be choosier about who they lend to, driving up requirements.

4. Uncertain credit risk

Banks are fairly reluctant to fund untested or new markets, as they always use industry standards and benchmarks when assessing risk. The more certain a project is, the happier the bank is. Unfortunately, that means if your venture is on the cutting edge, the bank might not be the best fit and approval could be difficult. Alternative capital sources are often the best option for companies that find themselves in this situation.

5. Insufficient trading history

Your trading history is like a testimonial towards your ability to repay your loan on time. For a bank to approve financing, they need to be very confident that your business is managed efficiently and will be able to make payments as scheduled. A short or non-existent trading history isn’t viewed as reliably as a long one, making it harder to get approved.

6. Untested business model

This relates somewhat to number four, in that it’s all about certainty. A new venture in a well-established market could still be a no-go for a bank if the business model is significantly different from the ones that have been proven to work. It all comes back to mitigating risk, and doing things differently is always riskier than sticking with the status-quo.

7. Weakening economy

Sometimes timing is everything, and the state of the economy has a big impact on a bank’s willingness to give you financing. Tough economic times mean a higher risk of failure, and that means the chances are higher that the bank won’t get their money back. As a result, banks tighten up their requirements during weak economic conditions.

8. High-risk industry

There’s that R-word again. Not all industries are created equal, and some are inherently more risky than others. If the bank perceives the industry that you operate in to be weak or particularly risky, the difficulty of getting financing goes way up. Industry risk is determined by probability of default, and some of the highest-risk industries might come as a surprise. Would you have expected florists to be in the top ten?

9. Unclear market growth

Banks aren’t in the business of financing new innovations and emerging markets. Venture capitalists make money by taking risks and betting that their few big winners will more than make up for their many losers. Banks take the opposite approach, focusing on consistency and the highest probability of getting paid back on the financing they approve.

10. Poor management

Management is a big piece of the puzzle, as the best business plan isn’t worth the paper it’s printed on without the right management team to execute it. Banks look for strong, diversified management teams with the skills and background necessary to make good on the revenue projections in the business plan. If your management team is a weak point, it’s going to significantly hurt your chances of approval.

Alternative SME Money for small business growth

A 2018 survey by OnDeck Australia showed that 55% of business owners have been rejected financing by their bank. That’s a huge number, and it represents a real problem for small business. It also represents an opportunity for growth in alternative capital sources. In fact, 33% of SME’s indicate that they plan to seek out alternative capital sources to help their businesses grow. In contrast, only 30% feel that their options to do so have Improved over the past five years. That’s a hungry market, and it’s exactly who Accrutus Capital is here to serve. Accrutus Capital helps out when the banks can’t, providing small businesses with assistance to fund growth. If your business is facing financing challenges due to past bad credit, insufficient trading history, or high-risk conditions, Accrutus Capital might be the flexible alternative financing solution you’ve been searching for.

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Alternative SME Money Options

Unsecured business loans provide cash flow to a wide variety of small and medium business owners for a number of business needs, including management buy-outs, acquisitions, partner exits, of funding for large projects.

Typical alternative SME financing models leverage against a company’s cash flow, aged receivables and payable ledger, and sometimes cash against future credit sales, such as a merchant cash advance. As a result, these business loans – designed to provide short-term, immediate working capital – don’t require colleterial to underwrite credit risk.

Typically, the interest rates are higher than those charged by banks, which is necessary to offset the elevated risk. Rates are determined by a number of factors, including credit score, industry type, and loan term. While interest rates may be higher, alternative SME financing offers a number of major benefits over traditional banks, including:

  • High approval rates
  • Flexible payback terms
  • Quick access to funds
  • Minimum paperwork
  • Any business purpose
  • Unsecured finance

Accrutus Capital is Helping Australian Businesses Grow

Cash flow is a major issue for many small businesses in Australia. Even small fluctuations in cash flow can have a devastating effect on a company’s ability to operate. It’s no surprise that, according to Deloitte Access Economics, 200,000 small businesses in Australia have problems accessing financing. Data from the Australian Bureau of Statistics (ABS) also shows that access to financing is the most common obstacle to innovation, impacting roughly 400,000 Australian businesses.

Small businesses are the driving engine behind the Australian economy, accounting for almost 50% of Australia’s GDP. Without the funding they need to grow and innovate, that engine is being starved of fuel, and the result is damaging not just to small business owners, but to all of Australia.

Luckily, we’re here to help! Accrutus Capital is committed to increasing awareness of alternative SME money available through different loan structures, and to saving your business time and money. Call us today at 02 9006 1327 and speak to your finance specialist at Accrutus Capital for more information about alternative SME money options. We might just be able to help boost your business with up to $100,000 instantly, with no security required.


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