There are no two ways about it, the COVID-19 pandemic has ripped the world economy to shreds. Stock indexes are volatile, many businesses both large and small have closed for good, and many vulnerable sectors, such as hospitality, could take years to fully recover.
It’s an uncertain future that’s for sure, and small businesses, in particular, are looking for ways to offset a little of the financial load and help them through these turbulent times.
But will those small businesses be successful in applying for funding?
If you’re one of the thousands of business owners in a similar situation, it might be a good time to explore your options and stay informed. Here are a few considerations for securing business financing after the COVID-19 pandemic:
Is Securing Small Business Financing Going to be Tough?
There’s a strong possibility that it won’t be as easy as this time last year. If you’re looking to secure a business loan or equipment financing for your company, the main factors to keep in mind are as follows:
How Long You’ve Been Operating:
Finance companies are looking to lend to companies with a track record that shows the ability to manage their liabilities over time. That means you’re going to need to have been running for typically at least two years (some loans require less time in business) without any major hiccups, and present yourself as a trustworthy and safe option before they’ll consider you for a business loan or line of credit.
Credit History, Both Business and Personal:
Credit history is probably the biggest influencer when it comes to securing business or equipment financing, so it absolutely pays to find out your score as soon as possible.
There are several popular services available that make it easy to monitor your current business credit rating: Experian, FICO, Equifax and Dun & Bradstreet are notable providers. What isn’t widely known is that these services also help to raise those scores by fixing admin and reporting errors.
Around 20% of all Americans have incorrect credit scores due to these errors, so it’s definitely worth doing some digging to check everything is in order.
Cash Flow Concerns:
Aside from credit history, funding companies will want to be assured of sufficient cash-flow to cover debts. Even the most conservative of lenders will go through your financials with a fine-toothed comb and see real-time data on your financial standing.
Even the least strict of lenders will absolutely require month-to-date transactions and evidence of a healthy cash-flow. Be prepared to provide at least 6 months of bank statements and month to date transactions, make sure you also include statements from months prior to COVID to show normal operating months.
The Industry You Operate in:
A business that could have received easy and straightforward funding last year might well be at the bottom of the list in a post COVID-19 world. As of late, essential businesses have received faster financing options than luxury service providers. Funders are going to be increasingly risk-averse even after the pandemic completely eases.
The Sectors Where Financing Could Be Tough:
Experian has conducted data analysis to ascertain which industries and sectors are most at risk in a post-COVID-19 landscape. The results aren’t particularly surprising, with arts, entertainment, retail, accommodation and dining being the worst possible industries when it comes to the likelihood of securing a small business loan.
In short, anything that involves crowds of people in close proximity is definitely going to be given a second look when it comes to securing business financing after the COVID-19 pandemic.
The Sectors Considered Low Risk:
According to Experian, industries such as education, utilities, healthcare and agriculture (including forestry and fishing) are currently the most stable candidates for financial help.
A Limited Supply of Lenders…
The biggest issue with securing business financing after the COVID-19 pandemic is that many of the funding sources have dried up. That’s simply because the pandemic has forced the vast bulk of all offices to close their doors and send staff home.
With the virus now beginning to subside (albeit slowly) some financial funding businesses are beginning to make their presences known again, especially in the private sector.
Overall though, whilst some companies are still operating as normal, the fact remains that lenders are definitely going to be a little more conservative than they were this time last year, both in terms of the clients they choose to work with, and the loan amounts they’re willing to issue.
Small-Business Financing After COVID-19
The future might seem bleak for business financing post COVID-19, but as long as you’re not working in the riskiest of sectors and have a decent credit score and financial track record, it’s still perfectly possible to gain financing and go on to thrive in these uncertain times! Some of the popular financing options prevalent today are Equipment Financing and Merchant Cash Advances. AMP Advance’s network of lenders can secure financing for all industries including high-risk industries from auto dealers to luxury retail stores. Learn more about our options here.