8 obstacles that keep you from getting a small business loan

21 Aug 2022

There comes a time – or even a few – when additional funding is required in many businesses’ lifecycles. However, there are a few factors that can stand in the way. Let’s look at the main obstacles to funding and how businesses can overcome them.


1. Bad credit

Before you apply for a small business loan you should take the time to check your business credit score. Your credit score will inform the lender’s decision. It’s also worth checking your personal credit score, as lenders may also take this into consideration.

Your business credit score will usually range from 0 to 100. The general rule is: that the higher the score, the better. Having a good credit score may enable you to get a competitive interest rate when you take out a business loan. 

On the other hand, if your credit score is poor, you might be turned down for finance or be offered a loan at a higher interest rate. 

If you do have a bad credit score or are yet to build a business credit history, there are things to do to get the ball rolling in the right direction, including:

  • Checking your current score

  • Paying bills on time wherever possible

  • Establishing credit

  • Submitting your accounts on time and in full

  • Monitoring your credit utilisation ratio

If you’re in the process of building credit but need a quick cash injection for your business, there are options out there. For a deeper dive into how your credit impacts your loan eligibility, check out our guide to business loans for companies with bad credit

2. Cash flow limitations 

A company’s cash flow is the cash (and equivalents) that flow in and out of it. 

When you apply for a small business loan, it’s usually one of the first things that the lender will check. Your cash flow is an indicator of how “healthy” your business is from a financial perspective and helps determine how affordable the loan is for you. 

If you’re experiencing a cash flow gap, you’re not alone. 

Seasonal business owners, for example, can encounter cash flow gaps at quieter times. Ongoing supply chain issues and Covid-19 are still having an impact on some businesses' cash flow too. If you need cash flow funding, you can use Funding Options to see what you might be eligible for today.

Funding for cash flow

Funding 3. Short trading history

How long you’ve been trading can also affect your ability to get a small business loan. If your business is brand new, it may not have established a credit history yet. 

Some business finance lenders will only provide loans to businesses that have been in business for at least six months to two years.

Although it can be easier for a more established firm to get a small business loan, it’s not necessarily always the case: there are startup loans out there that are designed for new businesses. As we’ll find out later, making multiple loan applications can harm your credit score, so always check the loan requirements before you apply.

4. No business plan

Many lenders require a business plan. Whether you’re considering applying for a business loan or not, it's a good idea to have one because it can help you stick to your goals. You may also want to consider creating a business project report.

A report outlining why you want the loan, what it’s for, how much, and over what term will give you focus and help demonstrate the feasibility of the project. It can also encourage lenders to view your professional approach with the right level of consideration.

5. Lack of paperwork

Being organised with your business’ paperwork can help the loan application process run more smoothly. On the other hand, not having the correct documentation can impede your ability to get a small business loan. Documentation requirements can vary, but you should ensure that you have the following to hand:

  • Business bank statements– used to verify your company’s income and outgoings 

  • Financial accounts & VAT returns – provide the lender with an insight into the company for the full financial year

  • Management accounts – provide an up-to-date view of how the business is performing financially 

  • Company directors – details of the company’s directors, shareholders and other financiers’ information.

  • Proof of ID and address – a driving licence or passport can be used for ID, while utility bills and bank statements may be accepted for your address.

6. Demotivation

It’s important that you’re able to demonstrate why you are a good candidate for funding and make a solid business case. Try to approach the process with enthusiasm too. Your belief in your vision should shine through in your business plan and project report.

7. Too many loan applications

Applying for multiple loans at a time can raise a red flag for credit bureaus. That’s why it can be useful to search the market for a finance option that matches your circumstances and needs before you apply.

8. Failure to explore the market

Funding Options help business owners make informed choices and access instant funding decisions, so they can trade, plan and grow with confidence. 

Nowadays, there are lots of specialist and alternative finance options for businesses to choose from. So, even if you’re unable to get a small business loan from your business bank, you might be eligible for a different type of business finance elsewhere, including: 

We’ve been chosen by the government-owned British Business Bank as a designated platform to find finance for businesses. 

Use Funding Options to compare 120+ lenders and match them with the right finance options for your needs. We'll help you through the process from application to receiving your funds. It’s free to apply and doesn’t affect your credit score.

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Stuart Lawson

Chief Commercial Officer

Stuart is Chief Commercial Officer at Funding Options where he plays a key role in driving the growth of the business and its relationships with more than 120 partners. A finance industry veteran, he has a strong background in alternative finance, corporate and commercial banking, as well as global transaction banking.

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