small business financing

How Industry Types Can Affect Small Business Financing

posted in: Blog

If your business lived through 2020, you are acutely aware that small business financing is filled with unique challenges that can make it tougher growing to that next level. We previously covered some of these challenges here, but others are directly connected to your industry of choice.

In the following article, we will be looking at the six factors to which industry types have a moderate to major correlation. Let’s begin!

1. Loan Failure Rates

One of the most significant economic factors influencing small business financing also has a direct tie-in to industry. The Small Business Administration keeps data on industries with the most significant loan failure rates.

Their findings can serve as a good indicator of risk levels in the private lending sector as well. Industries with higher failure rates come with more risk to the lender, and this will influence amounts, terms, and even if the loan is approved in the first place.

2. Consumer Behaviors

Another business factor for industries lenders must consider the consumer. Specifically, are the customers there to support the type of industry you are in, at least to the point where it is worth them approving your loan.

Lenders need to know whether the revenue will be there for you. They need to be assured your projections will get them repaid with interest.

3. Investor Behaviors

By investor behaviors, we mean actions toward your industry. Do investors give your business enough credit? They will express that through the funds they pour into companies like yours and those adjacent to you.

If it is too risky for an investor, lenders will likely feel the same. As you build your business plan, do some digging. Show potential lenders examples of firms investing in companies like yours and why they choose to do it.

4. Innovation Space

As a small business, you can overcome size standards within any industry through the simple act of innovation. Let’s face it.

Some industries are ripe for disruption. If you can show that yours is the company to do it with an effective business plan, you have just earned a competitive advantage.

Howard Schultz, Starbucks’ owner, recommends disrupting your industry and even your business practices whenever possible. Follow his advice. Lenders will notice.

5. Amount Requested

A fifth industry-centered factor when applying for small business loans is the amount you’re requesting. This process is another place where the business plan is essential to understand where you invest in your business.

Get firm control over the numbers. Do not be afraid to ask for what you need but be aware of your sector’s average amounts, especially for your companies at or about your size.

6. Economic Conditions

Finally, loan approvals will hinge, in part, on the current economic conditions. Hard times such as those caused by COVID can hinder or hurt depending on your industry.

If you are a healthcare startup, for example, you might have an easier time getting approval if you can show the demand and that you are adequately prepared to meet it. Brick-and-mortar retail stores, on the other hand, could find the waters less inviting.

Industry Matters When It Comes to Small Business Financing

If you are looking at any small business financing options, be sure to do your homework. Study the six factors presented here when building your business plan, and show how you’re uniquely poised to meet the call.

Best of luck as you seek to grow your business! If you are ready to see your industry’s financing options, contact Penn Commercial Capital today.