As a small business owner, I think if anyone in the country has figured out by now that “life isn’t fair,” it’s you. In our game of capitalism, no matter the attempts by regulators, officials, and legal professionals to create a “fair business environment,” the system is not fair and will never be fair. All one can do is learn the game and play the game to their advantage.
In the business of alternative commercial financing, the game is certainly not fair, as many businesses struggle to obtain financing approvals based not on anything that they’ve done wrong, but based simply on the industry that they operate in. For this article, I wanted to discuss some of those industries along with ways you might be able to mitigate this situation.
In prior articles here on NAV, I’ve discussed the main alternative financing products of the Merchant Cash Advance and the Alternative Business Loan extensively. As despite there being many traditional products out there such as Business Term Loans, SBA Loans, Business Credit Cards, and more, many businesses are turning to alternative funders (or online lenders) for financing due to more accessibility, faster turnaround times, and (in some cases) better service. But even though these products are “alternative in nature,” which provides for a much more liberal underwriting criteria, there are still a number of businesses that will not qualify as easily and thus struggle to obtain financing.
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Before discussing being banned based on your industry in general, let’s look at fundamental issues a business might have that would make them struggle to get approved for business financing:
1. Bad Credit Profiles
Coming to the table with bad credit, even for alternative financing, might still keep you from obtaining approval or at least approvals at efficient levels. In a nutshell, anything lower than a 540 FICO score will bring some issues with approval. Note, that in terms of national credit score measurements, anything under 579 is considered to be poor credit. 800 – 850 is exceptional, 740 – 799 is very good, 670 – 739 is good, and 580 – 669 is considered to be fair. So from a national measurement, 540 would be considered in the poor range which does indeed mean that your credit profile is bad. Also understand that business credit is checked as well, so if you have a business credit profile with a low PayDex score, that could be problematic as well.
2. Legal Filings
If you come to the table with too many legal filings against you or the business, that could also spell problems. These include too many or too large of tax liens, judgment liens, bankruptcy filings, and outstanding lawsuits against you or the business.
3. Bad Profits and Bad Cash Flow
If you have low profit margins, no profit margins, and/or bad cash flow in the form of an excessive amount of NSFs/Overdrafts/Negative Bank balance days, then your chances of approval will also be difficult.
4. Higher-Risk Industries
So let’s say the above doesn’t apply to your business and you have in fact operated your business like a well-oiled machine. However, because you just so happen to operate in one of these sectors below, you will have a harder time obtaining approval for your financing request. These sectors include (but are not limited to):
- Businesses who operate only online
- Businesses who operate at home with less than two years in operations
- Businesses that sell marijuana-related services
- Finance companies such as banks, credit unions, mortgage brokers, insurers, and factors
- Tax/debt resolution companies
- Credit protection, restoration, and repair companies
- Collection agencies
- Political campaigns
- Blood and organ banks
- Pornography, adult entertainment and escort services
- Investment opportunities, securities, and commodities
Also any business that sells illegal products or services will of course be banned from financing. So as long as you run an honest/credible business and don’t operate in one of the areas above, you should be OK in terms of being granted approval of your financing request, as long as you don’t have bad credit, too many legal issues, or cash flow problems.
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