10 Obstacles Facing Businesses That Need Working Capital - C2FO

10 Obstacles Facing Businesses That Need Working Capital

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.

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.

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.

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%.

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.

Lack of collateral and assets

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

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.

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.

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.

Other options to traditional loans include:

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.