It may come as a surprise to learn that some lenders have an unofficial blacklist of business sectors they consider high risk. Even if your business is doing exceptionally well, you could struggle to attract the business finance you need – but why?
Well, there are several reasons an industry could find itself out of favour. The first is reputational risk – we’re talking about sectors like adult entertainment, pornography, gambling and pawn broking. Lenders don’t want to be associated with these contentious sectors and are worried about suffering reputational damage by association. Alternative lenders will usually take a more moderate and measured view, but there are still sectors that they will not entertain.
Secondly, there are financially dubious sectors – a prime example would be the non-profit or third sector. Whilst charities perform vital humanitarian work, many of them are not financially stable and are almost entirely reliant on donations. If these donations are not repaid, they will be unable to meet their financial commitments and will quickly find themselves being wound up.
Then there are speculative industries – those requiring a substantial upfront investment in anticipation of a huge payoff. Buying and restoring properties would be a prime example: if the housing market takes a sudden turn for the worse, the borrower will be stuck with expensive assets that cannot be sold. The entertainment industry also falls into this category: an entrepreneur may believe they have discovered the next global movie or rock star, but lenders will be less likely to speculate large sums on realising their talent.
Finally, some industries may not be inherently risky, but simply have a poor recent history. We’ve already discussed property downturns – when these happen, even profitable businesses in the sector will struggle to secure credit as lenders’ algorithms will mark them as a poor risk. One industry that almost always has a poor history is catering: most restaurants don’t make it past the first year and – except at times when the economy is booming – lenders are generally cautious of this sector.
Of course, lenders will also have their own criteria – sometimes based on data and sometimes, to be frank, on prejudice. For this reason, you should never take no for an answer and should consult several lenders, as there’s every chance one will do business with you even if the remainder decline. But if you fear you’re on an industry-wide blacklist, what can you do?
How to circumvent the small business loan blacklist
First of all, be flexible about the sort of finance you require – a lender may be prepared to provide a short-term small business loan to a restaurant but not long-term finance due to the instability in the industry. Secondly, alternative lenders are generally a good deal more flexible, as they apply different criteria that rely less on trading figures and previous financial performance.
If you’re willing to offer security, you may well be able to overcome lenders’ reticence – knowing they can seize an asset if they’re not repaid significantly reduces their risk. Alternatively, you might consider invoice finance as an ongoing financial solution – this allows you to borrow against the value of your invoices as soon as you issue them, with repayment being made when your customers pay you. With factoring, the finance company takes control of your debtor ledger and assigns experienced credit control professionals to secure early payment, whilst with invoice discounting you retain control of your own debtors.
Talk to Cashsolv for your small business loan
As an innovative alternative lender, Cashsolv can offer your business emergency loans (with funds inside your account within 24 hours), asset-based finance (where you borrow against the value of your premises, plant or equipment) and invoice finance. We are happy to consider customers in all sectors – and our lending criteria are very different from those of banks. To learn more about how we can help with your small business loan, please visit our business finance page.