CAT / FIA FFM Syllabus D. Financing Decisions - Reasons why a small business can find it difficult to obtain finance - Notes ^{2 / 5}

These are:

1. Difficulties in raising finance Security

   Banks often require security for a loan.
    
   A small company often does not have the assets on which to secure a loan.

2. Risk attitude

   Banks can have a risk adverse attitude to new projects/businesses. 

   If a business/project is considered risky, the bank may charge a higher interest rate, which a small business can not afford, or the bank may decide not to lend at all.

3. Capital markets

   Small businesses are not large enough to access the capital markets.

4. Owners

   Owners may not have the personal wealth to provide additional finance if required.

5. Trade credit

   Suppliers may be reluctant to offer trade credit to a small company due to the increased credit risk.

6. Lack of skills

   Owners may not have all the skills needed to attract the types of funding required by small businesses e.g. business angels.

7. Cash flows

   A start up business, without previous experience, has not demonstrated the ability to generate adequate cash flows to repay the finance.