Sunday, December 23, 2012

Risk Factors of Small Business Loans: Solutions to Reduce Risk

Financing is the act of funding a business activity that hopefully will lead to profit. That is the book definition written down by students or people that never had the pleasure of running their own business. For those who have gone through the ordeal however, financing might take on a completely new different meaning. 

When someone talks about financing a business, what usually springs to mind is the foundation of startups. That is not true since businesses regularly seek financing. The problem occurs when there is difficulty in finding sources of finance.

The credit crunch in 2008 was more than a revelation for many entrepreneurs. Most of us never thought about the risk factors in small business loans. Small businesses account for the majority of new jobs being made in America and is to credit for 58% of its employment. It’s funny how the majority of the population has no clue as to what happens in the back end process of small business financing. For starters, let’s look at some of the risks an entrepreneur would have to involve himself with to finance his idea or company.

Personal Money

When a business owner wants to start something, his first action is to reach down his pocket. Ironically, if the funds aren’t enough, which in most cases is the case, this is also the first factor that banks would consider. Banks need to know how much of your personal money you are willing to hang on the balance to factor in the amount of loan would they approve you for.

Unfortunately, when the business initiative you’ve financed flounders, it’s not only the loan amount that will get lost, but also your personal savings you initially laid out for the groundwork. 


Collateral may be in the form of a house, a car, an equipment, real estate or anything that the lender may find of value to guarantee the repayment for a loan. All is well when you’re able to repay as planned, but when you’re trying to make ends meet the collateral is in danger of being possessed by the lender as repayment. 

Credit Score

We all want our credit score to be untarnished. Sadly, a good credit score is the first thing to go when you fail to make payments on time with your lenders. 

Some Effective Solutions to Lower the Risks

Create a Budget That Includes All Incomes and Expenses –to avoid failing on payments, always know where your money is going. Great entrepreneurs are often described having this trait. This is true no matter how incredible their net worth has become.

Start a Savings Meant for Setbacks – I’m sure you can set aside some part of your business’ income as an emergency fund. This works on all business scales. You’ll definitely have to afford it, because what you will not be able to afford is when your small business loans go on default.

Loans from Family and Friends –Although loans from loved ones are usually filled with benefits, this should be the last resort as it might destroy your relationships.

Author Bio: is the online lending company to go to when confronted by a brick wall. We grant people access to quick cash the moment they need it. For further information on our services.


  1. Thanks for sharing with us risk factors of business loans and solutions of these factors. Every business lenders want security for business loans. We should plan like that payback of business loans can make as early as possible.
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  2. When someone speaks about funding a business, what usually rises to mind is the base of start-ups. That is not real since companies consistently search for funding. The issue happens when there is problems in discovering resources of fund. payday loan

  3. Thanks for given such useful ideas.For getting loans we have two ways secured and unsecured.According to business we have to decide which way we have to choose.For small business loans we can choose online way for loans.

  4. Hi, love your post. That is the problem when lenders don't shoot-straight with small business borrowers. I'm sorry to hear of this. There's not much to be done, short of asking your lender to release the additional collateral (though they may have asked for it in order to have enough on which to make your loan). Many lenders will release additional pledged collateral as the underlying asset goes up in value -- however, this may take a few years. Best of luck to you!~ Christ Hurn

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