The alternative lending industry continues to grow at an extraordinary rate – almost doubling every year – by doing two things incredibly well.
1. Moving faster than traditional lenders
2. Saying “Yes” to more businesses than traditional lenders
In 2015, Market Street Funders matched 75% of eligible businesses with term sheets, often from multiple sources. And while that may be a great match rate, we take it personally when we cannot find an offer for a client.
We surveyed our team of Funding Navigators to learn what they saw as the Biggest Obstacles to Successful Funding.
Variable or Inconsistent Sales
Lenders want to see consistency, plain and simple. A business with predictable, demonstrated revenue is in a great position. When sales are steady lenders take notice. They are evaluating ability to repay based on current volumes, not future potential.
Frequency of Deposits
The frequency of deposits (a proxy for sales) is almost as important as consistency. A business that sells to one customer and makes one deposit per month is viewed differently than one that makes 500 sales to 500 different customers and makes daily deposits. Lenders get nervous when sales are too concentrated.
Negative or Low Balances
Most alternative lenders are going to pull payments on a daily or weekly basis. Negative balances, NSFs, or low average daily balances demonstrate a business may not be able to make future payments. Again, the ability to repay is based on current performance, not potential.
Existing Advances and Balances
This is an almost impossible situation. When businesses have multiple, current advances they often become untouchable. First position funders will pay one another off if 50% of the advance goes to the business. The presence of 2nd and 3rd position deals is a red flag.
These Obstacles are conditions you cannot resolve overnight. However, they will make alternative financing difficult to obtain. So rather than traveling down this difficult path, we recommend to clients to resolve these fundamentals before beginning a search.
After all, there is a very real cost to an unsuccessful search – every attempted match will leave an inquiry on your personal credit file. Inquiries lower credit scores and excessive inquiries can have disastrous consequences to your ability to secure financing. If your fundamentals are strong, there is little reason not to find a match.