3 Top Financial Risks Entrepreneurs Face

By Megan B. Shepherd 

Entrepreneurs typically have a high risk tolerance and are often willing to take on various challenges to start a business. And according to Finder’s Consumer Confidence Index, roughly 28% of Americans are considering starting a new business within the next 12 months, despite the risks. While getting your new business off the ground comes with a wide array of challenges, financial risks are among the most significant. We’ll talk over the top three financial risks entrepreneurs should keep in mind as they venture into owning a business.

Barriers to financing

Entrepreneurs face many risks when seeking a loan for their business. These risks can influence your ability to secure financing as well as the loan’s terms. However, entrepreneurs struggling to get financing from a traditional business lender still have options. Some of the best no-doc loans offer loans to borrowers with credit scores as low as 500 or as little as three months of sales history.

Here are a few of the most common challenges you may encounter when applying for a business loan:

• Insufficient time in business. Many business loans require a specified time in business for approval, often two years. However, some business lenders may offer more flexibility with time-in-business requirements of one year.
• Entrepreneurs with poor personal or business credit histories may have a harder time securing financing.
• Higher interest rates or stricter loan terms. Entrepreneurs with less-than-stellar credit or pursuing alternative loans are usually offered higher interest rates and less favorable loan terms. 

According to Finder’s Consumer Confidence Index, 42% of American entrepreneurs agree that revenue requirements are the main reason they can’t get business funding. This is followed by not meeting time-in-business requirements, unaffordable APRs, time-consuming applications, not meeting credit score requirements and finally, experiencing a lack of transparency

Underestimating capital needs

One of the most common financial risks entrepreneurs face is not having the funds they need to start or keep their business going. Entrepreneurs often invest their own money as well as seek funding from investors or borrow money to launch their business. Underestimating how much money you need for startup costs, unexpected expenses and the possibility of slower-than-expected revenue growth can mean running out of capital before your business becomes profitable. Be sure to develop a robust business plan with realistic financial projections that account for the unexpected.

Market and economic fluctuations

New business owners are exposed to outside factors like economic downturns, fluctuating market conditions and industry-specific challenges. A shift in consumer behavior can negatively impact your sales and revenue, making it difficult to remain profitable or maintain your budget to repay any outstanding business loans.

Wrap up

Entrepreneurs who are prepared and financially prudent are better positioned to navigate these common financial challenges. Developing a solid business plan, securing the correct level of financing, monitoring your cash flow, exploring alternative financing and staging information about industry trends can increase your chances of a successful and sustainable business.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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