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PROBLEM: Low Business Or Personal Liquidity - No Working Capital


Many borrowers are denied loans because the lender believes that they have to little

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cash, relative to the requested loan amount and relative to the rest of the borrower’s expenses.  From the banks perspective, they are concerned that if the borrower has a few slow months, they will not be able to meet their obligations.  Or that their business is already failing and that the borrower has already used up its cash reserves. 


(This is just one page of the report.  Scroll below to see the other SOLUTIONS.)

From the borrowers perspective this is often very frustrating argument, as they are often requesting working capital to help cure this very same problem.  It’s a “chicken or egg” issue.   

SOLUTIONS To Lack of Liquidity 

Potential solutions to this depend a lot on how well the business is doing and what the other strengths of the loan request are.  As discussed throughout this site, do you have good loan to value?  Are your gross sales trend stable?  Is your operating cash flow decent?  How is your credit and your level of personal expenses?  Among other criteria. 

If for example, your gross sales are stable and your business is profitable, than getting working capital is easier to pull off.  If however, your gross sales trends are down, and you are losing money from a cash flow perspective, you will have a very difficult time getting working capital and or getting any loan at all.  So, solutions to having low liquidity are in general, tied to the overall strength of your business.

Here are some specific solutions:

  1. Keep looking for new banks.  Some banks place a tremendous amount of weight on your existing cash, while others do not.  The easiest solution is to just identify a new bank that is not as focused on your existing cash.  Ask the loan officer in the beginning of the process how important this is to them.  And or try to find a bank that will lend you working capital, and that will consider this as your cash reserves (some won't!).
  2. Promote and focus on your businesses strengths.  Talk about your experience, trends, cash flow, how you reduced costs, etc.  If this is your only weakness, you should be able to get the loan done that you need and build working capital into the loan. 
  3. Consider other types of working capital loans beside just commercial mortgages.  SBA loans, lines, or factoring loans maybe an option.
  4. If applicable, try to establish how and why you have spent your cash reserves.  Ideally you invested the money in some type of long term investments that helped you improve your business.  Or that you had a one time emergency/event, like a fire or major theft that depleted your cash.  The key here is to prove that you did not spend your cash on meeting payroll or your other monthly debts.  This will be a redflag and indicate to the lender that there might be a serious cash flow issue.    
  5. This is obvious, but do everything in your power to raise cash – sell household goods, liquidate investments, take cash out of your life insurance policy, ask relatives, employees, vendors, bring on a partner that is more liquid than you, etc.  After the loan closes you maybe in a position to immediately pay them back.   

The point here is that borrowers with low liquidity are often turned down because the bank believes that the business does not have enough cash flow to make its monthly payments and  that you are tapping into your reserves to meet them.  If your cash flow is good, but just happen have low levels of cash, than the bank is likely concerned that if you have a few slow months, you will have nothing to rely on.   

Overall, you need to do your best to prove 1. If you have had a cash flow issue, that it has been resolved and 2. that the proposed loan will improve your cash position, giving you the reserves you need for unexpected future events. 




Continuation of Report:  Other Common Causes of Small Business Loan Decline and Their SOLUTIONS 
  • Small Business Loan Help Beginning of Report
  • Dealing With Bankers An overview of how an imperfect loan submission process works, and strategies on how to overcome it. 
  • Commercial Loan Solutions General Overview of most of the Solutions.
  • How To Research Banks & avoid working with SICK banks.
  • High Loan To Value How to deal with being over leveraged.
  • Declining Gross Revenue Get over declining gross sales.
  • Disadvantages & Advantages of Partnerships Specifically related to loan requests.

  • Low Business Cash Flow AKA low debt coverage ratio's & what potential solution are.
  • Low Liquidity or to little cash, relative to the loan request.
  • High Personal Debt your personal expenses have a big impact on your cash flow, see some solutions here.
  • Bad Personal Credit Scores Best solutions to getting over low credit scores.
  • Business Debt Consolidation Loans have their own set of issues, learn best solutions here.
  •  Problems With Other Sources of Income also referred to as Affiliates
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