Believe it or not, your ability to get business funding is based on more than just your credit history and the strength of your business. In the world of small business lending, your industry type plays a big role in your ability to get business funding. It doesn’t just apply to how much you’d qualify for, but also whether or not you can get approved at all. When you compare different types of business funding, there are industries that are liked by providers of one type and disliked by others, and vice versa. But, there are also industries that are altogether disliked across the board. For these types of businesses, getting funded is more than just a challenge presented by the current economic climate. It’s the norm for them.
Industries that Get Business Funding Easily
Like I mentioned, there are certain industry types that get a lot of love from all types of lenders. Medical professionals such as doctors, dentists, and even veterinarians are considered to be safe investments. Many retail industries are the same. Generally, businesses that have a regular, brick and mortar physical location where its customers come to spend money has a better chance of getting business funding than businesses that don’t.
Industries that Don’t Get Business Funding So Easily
Then there are some industries that are almost totally unfundable. The best example that I can think of to fit this description is a debt collection company. This is a legitimate business and can be extremely profitable. People who own debt collection companies can have strong personal and business credit, great cash-flow, and a lot of other things that, on paper, would make it an easy decision to decide to lend to them.
But you could understand why it would be hard to justify lending money to someone who does debt collection for a living. If ever there was a potential client who would be suited to get out of repaying a loan, it would be a debt collection company. So, no matter how good this particular application looks on paper, a business in this industry would probably have a hard time getting a loan. Not to single out debt collection companies, but it’s just a good example to make my point in this case.
Industries that Could Go Either Way
There are several industries that are both loved and hated, depending on who you ask. One industry that gets a lot of attention from providers of alternative financing is the restaurant industry. For a number of reasons, traditional banks don’t like to lend money to restaurants. It’s hard to verify income because there can be a lot of cash coming in that will never present itself in any financial statement. They also have a very high rate of failure. They close or change ownership more often than other industry types. So for these reasons and more, banks have given restaurants the cold shoulder for a long time.
Providers of other methods of business funding such as the merchant cash advance love to fund restaurants. Because their types of funding are shorter term and because of the method that they get repaid, restaurants tend to be a uniquely safe investment for them. With merchant cash advance repayments based on a percentage of credit card processing transactions, restaurants are great for them because they process many transactions every day and they are easy to monitor.
I wonder if this is common knowledge when someone starts a business. Would it affect someone’s decision to start up? Where does your industry fall on the fundability scale?