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WORKING CAPITAL


10 OBSTACLES FACING BUSINESSES THAT NEED WORKING CAPITAL

AUGUST 11, 2022  |  
THE C2FO TEAM




HERE ARE THE MOST COMMON ROADBLOCKS — AND A FEW ALTERNATIVES FOR MOVING PAST
THEM. 

Healthy businesses need working capital so they can meet everyday expenses and
even invest in growth. Unfortunately, 22% of business leaders say that access to
funding has been a problem for their companies. 

That’s according to C2FO’s 2022 Working Capital Survey, a 10-country study of
decision-makers at small businesses, mid-sized companies and large enterprises.
The annual survey assesses businesses’ ability to acquire essential funds
quickly and fairly. 

While 22% might not seem like a large percentage, it still represents a sizable
number of companies — companies that could be at risk if they can’t obtain
working capital when they need it. Working capital is especially important in
tough economic times because it gives businesses the flexibility they need to
respond to higher prices and other challenges. 

(Need help improving your eligibility for working capital? Here’s our guide.)

What are the most common obstacles to accessing working capital? Here’s what
survey respondents told us. 




HIGH INTEREST RATES

Among respondents who said they had trouble accessing financing, 45% said that
higher interest rates were an obstacle — the single biggest problem on this
list. 

In recent years, several countries have enjoyed historically low interest rates,
which lowered the cost of borrowing and made it possible for more companies to
access bank loans. 

But conditions are changing. To fight runaway inflation, central banks around
the world are raising their benchmark interest rates. Higher interest rates make
loans and lines of credit more expensive and should, in theory, reduce demand
and slow down price increases in the larger economy.  

For companies that need capital, though, higher rates represent another barrier
to accessing badly needed funds. They make it so much more expensive to borrow
money that, in some cases, companies that would have been eligible for loans
won’t qualify now. 






DECREASING REVENUE AND POOR CASH FLOW

The next two obstacles were closely related. Among those surveyed, 38% said
declining revenue and 30% cited poor cash flow as issues when seeking funding. 

Traditional lenders look at loan applicants’ revenue because the lenders want to
know the would-be borrowers can cover their monthly bills and the cost of
repaying the money they intend to borrow.

Lenders will look at monthly cash flow, too, to ensure there is enough cash on
hand throughout the year to meet monthly loan payments and other obligations. 

Problems with cash flow and quality of earnings was the No. 1 reason why loan
applications were rejected, according to Pepperdine University’s 2021 Private
Capital Markets Report.




VARIABILITY IN ORDERS AND DEMAND

Variability — like the seasonality you might find in construction or tourism
businesses — was cited as an obstacle by 27% of those surveyed.

Lenders might worry about a company’s ability to meet monthly payments if almost
all the company’s revenue arrives in a three-month span, or if it has only one
big customer that pays up only a few times per year. 




DIFFICULTY IN OBTAINING A LOAN FROM TRADITIONAL BANKING PARTNERS

Among our survey respondents, 26% said they struggled to qualify for a loan from
a traditional bank. 

On the one hand, a bank loan was one of the most widely available sources of
capital for businesses (available to 65% of respondents), second only to the
business owner’s cash flow (available to 70%). But on the other hand, that still
leaves a significant minority that don’t qualify — about 32%, according to our
survey. 

Even when businesses win approval, they don’t always receive all the funds they
request. According to the most recent Small Business Credit Survey from the
Federal Reserve, 51% of small companies received all the money they sought in
2019. By 2021, that had dropped to 31%. 

Even businesses with good credit weren’t immune. Among small businesses with low
risk, 45% were approved for the full amount in 2020. That number fell to 39% in
2021.






INFLEXIBLE AND TIME-CONSUMING PROCESS TO OBTAIN CASH FROM OTHER SOURCES

Twenty-one percent of respondents cited this as a problem. While some lenders
will turn around an application in a few days, others can take weeks or months
to respond to your request — not an ideal situation if your company needs cash
now. (This is one reason why small businesses are advised to start a banking
relationship before they need a loan.)

Plus, traditional lenders must typically judge loan requests by a set of
standards and formulas that have little or no flexibility. As part of that,
business owners usually must submit a large amount of paperwork and
documentation — another chore they probably don’t have time for. 




LACK OF COLLATERAL AND ASSETS

In our survey, 19% of respondents said a lack of collateral or assets was an
obstacle to securing funding.  

Remember: Traditional lenders want to do everything they can to ensure the money
they lend is repaid. One way to reduce risk is by requiring collateral — assets
like equipment, receivables or real estate owned by the business, or even the
personal assets of the business owner. 

For smaller businesses, though, they may have either no collateral or not enough
collateral to meet the lender’s standards. 




POOR CREDIT SCORE

Bad credit was cited by only 15% of survey respondents, but among small
businesses seeking financing, it’s a real and serious hurdle to qualifying for a
traditional bank loan. Lenders will sometimes accept businesses with bad credit
if they can demonstrate strong cash flow, provide collateral and be willing to
pay much higher rates — an option that most would find unappealing. 




TOO MANY ALTERNATIVE FINANCING SOURCES TO CHOOSE FROM / NOT FAMILIAR WITH
ALTERNATIVE FINANCING PLATFORMS 

These are technically two different responses — 14% of those surveyed said there
were too many platforms, and 9% said they weren’t familiar with those
alternatives.

But they both speak to a larger problem in business financing: Companies are so
conditioned to use the most common methods that they aren’t in position to try
an alternative.






FORTUNATELY, THERE ARE ALTERNATIVES 

Traditional loans and lines of credit aren’t the only options for businesses
that need working capital. 

For example, dynamic discounting allows companies to receive payment on their
outstanding invoices days, weeks and even months earlier in exchange for a
small, customized discount. Unlike a traditional loan, dynamic discounting
doesn’t come with any of the requirements around cash flow, revenue or credit
history — the “capital infusion” comes from customers that are already obligated
to pay those invoices. 

In our Working Capital Survey, 43% of respondents said dynamic discounting was
available to them. But among those who actually used it, the reviews were
overwhelmingly positive — 88% were satisfied with their provider. (Curious about
how dynamic discounting compares to other sources? Check out C2FO’s guide.)

Other options to traditional loans include:

 * Invoice factoring, where a business sells its receivables to a third party,
   which takes responsibility for collecting on those invoices. This option is
   more widely available, but it may come with conditions that some businesses
   would rather avoid. For example, because the factoring company takes
   responsibility for collections, it could interfere with the business’s
   relationship with its customers.

 * Supply chain financing, also known as reverse factoring. A larger enterprise
   will work with a bank or third-party lender to pay a supplier’s invoice
   early, less a small fee. The enterprise then pays the bank on the original
   due date.

 * Peer-to-peer (P2P) lending, a type of online lending where individuals lend
   money to each other without a bank. It can often be faster and easier to
   qualify for this type of financing, but the risk of default is much higher —
   which means P2P lenders tend to charge much higher interest rates. 
   
   


THE BOTTOM LINE

Too many companies are struggling to obtain working capital when they need it,
for a variety of reasons. The good news is that, if you look beyond traditional
bank loans, there are still several affordable, flexible options available. If
you need help finding them, C2FO is ready to assist.




WANT TO TAKE CONTROL OF YOUR CASH FLOW?

EARLY PAYMENT THROUGH C2FO CAN HELP.

LEARN MORE


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 * 1
 * 2

About C2FO
Our StoryLeadershipCareersNewsroomContact Us
For Vendors
How It WorksFind Your CustomersInflation Margin Calculator
For Enterprises
Our PlatformOur Solutions
CashFlow+ Card
CashFlow+ CardFAQs
Capital Finance
Capital FinanceContact Us

866.463.6565

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