May 28, 2024
Travis Palmer

8 Risk Factors Lenders Care About

Most successful small business owners in America leverage finance to grow and seize opportunities. Therefore, if you plan on your business succeeding, you should familiarize yourself with the business funding landscape as soon as possible. Whether you’re looking to increase your “lendability,” lower borrowing costs, or plan a long-term project, understanding what lenders value provides a distinct advantage for small business owners. Read ahead to learn about 8 risk factors lenders care about:

Time in Business

This metric is straightforward. Typically, a longer time in business implies operating success and eases potential lender concerns about how the business handles adversity. Even newer businesses that perform well may have limited funding options without the historical data to support them. We advise operating for at least one year before applying for a loan.

Interesting Fact: In the US, approximately 20% of small businesses fail within their first year. Lenders see businesses that have been around for longer as more stable and reliable.


Lenders understand that certain industries are less susceptible to economic pitfalls, while others are more cyclical, seasonal, and volatile. Using industry-specific data allows underwriters to determine risk levels by comparing a business’s financial health and capabilities with industry benchmarks. Some industries, such as auto sales and legal practices, are considered restricted and have limited access to business funding. We recommend learning about industry-specific lenders and products geared toward your industry type.

Interesting Fact: The restaurant industry, for example, has a higher failure rate compared to others, with about 60% closing within the first three years. Lenders take such statistics into account when assessing risk.

Sales Volatility

When asked, “What are your monthly sales?” most entrepreneurs respond with, “It depends.” Some provide ballpark figures, ranges, and breakdowns of annual totals, but volatility makes the number far less predictable. Volatility means “liability to change rapidly and unpredictably” and is one of the biggest deterrents for lenders. Common contributors include seasonality, competition, product costs, development, and unexpected expenses. The less volatile your business seems on paper, the better. Even seasoned businesses with extensive operating history encounter volatility, so understanding and preparing for it is crucial to your success and ability to access capital.

Interesting Fact: Seasonal businesses like retail stores see significant sales spikes during holidays, affecting their sales consistency. Lenders may view these businesses as higher risk due to unpredictable cash flow.

Cash Flow

A multi-variant factor that measures “true sales,” deposit volume, and ending balances to determine how you manage your business’s cash flow. If two comparable businesses seeking capital deposit the same amount in monthly sales, but one reaches that number by making 20 monthly deposits while the other only makes a handful, the business with more deposits is more likely to get approved. From a lender’s perspective, the business with fewer deposits presents a larger risk, as compromising any of their deposits could significantly hurt the business and its ability to repay the loan. Similarly, maintaining a positive ending balance throughout the month indicates healthy cash flow management, so avoid any negative ending balances and/or NSF charges.

Interesting Fact: In the US, about 82% of small business failures are due to cash flow problems. Ensuring steady and healthy cash flow can greatly improve your chances of securing funding.

Personal Credit

Your personal credit score and history are gatekeepers to all things credit-related. Building creditworthiness takes time, and despite what you might hear, business lenders also analyze personal credit when determining eligibility for prospective borrowers. Make sure to pay creditors on time, use less of your credit limits, and avoid defaults, bankruptcies, and liens whenever possible.

Interesting Fact: In the US, the average personal credit score is around 710. A higher credit score not only improves your chances of getting a loan but also helps you secure better interest rates.

Business Credit

Developing business credit is essential for growth. First, register your business, get an Employer Identification Number (EIN), and a Dunn & Bradstreet (DUNS) number. Build your business credit by securing a business credit card, working with vendors and creditors who report payment history, and paying them on time. Strong business credit increases your overall creditworthiness and can allow you to access optimal funding without personal liability.

Interesting Fact: Only about 50% of small business owners know their business credit score. Establishing and maintaining good business credit can significantly enhance your financing options.


Profitability is a conspicuous lending consideration. While not all lenders require profitability to qualify, the best ones often do. Accountants might advise small business owners to report lower earnings to avoid taxes, but showing profitability unlocks substantially better finance options. Incorporating this dynamic requires strategy and is typically ideal for businesses with cash reserves and executable growth opportunities.

Interesting Fact: Approximately 40% of small businesses in the US are profitable, 30% break even, and 30% are losing money. Demonstrating consistent profitability makes your business a more attractive option for lenders.


Lenders evaluate outstanding debts to determine how much they can lend you. If your debt is relatively high compared to your business income, you may be over leveraged and more susceptible to financial strain. Managing your debt responsibly and not committing to obligations you cannot sustain is crucial.

Interesting Fact: The average small business in the US has about $195,000 in debt. Keeping your debt-to-income ratio in check is essential for maintaining financial health and securing new funding.


Use this information as a guide to prepare yourself. Effectively addressing these risk factors will create a world of financial possibilities for you and your business. Additionally, if your application is denied by a lender, don’t hesitate to have a conversation to identify where you fell short.

If you have any questions or concerns, feel free to contact us or visit our Approvd Resources page for more information. Ready to explore your funding options? Get offers today! Fill out an application with Approvd and discover the best funding options for your business.

About the Author

With over 20 years of experience in the business loan marketplace at Approvd, our expert has helped countless small business owners navigate the complexities of securing the right funding. Passionate about empowering entrepreneurs, our expert combines industry knowledge with a deep understanding of the challenges faced by small businesses today.

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