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The top three problems with small business lending—and how to fix them

business loan problem solving

Is growing the small business loan portfolio on your bank or credit union’s agenda? If so, you’re not alone. A recent survey by the  American Bankers Association  found that 61 percent of banks surveyed plan to moderately or aggressively  grow their small business lending  (loans between $3 million and $100 million) over the next two years. In other words, many financial institutions will vie for the same small and medium-sized lending business.

Yet will doing that be easy? Not necessarily. BAI industry insights presented earlier this year at a business banking executive workshop show that business banking loan growth declined in 2017 more than anytime in the past five years at 5.2 percent. Of the largest loan categories, the only one to show any growth between 2013 and 2017 was SBA loans. And those rose just a hair in 2017, up 0.1 percent, BAI figures show. 

Some industry experts see positive signs. “Fifty-five percent of the owners of small and medium enterprises are willing to consolidate their personal and business relationships at the same financial institution,” says David Kerstein ,   president of   Peak Performance Consulting Group ,  in a recent BAI Banking Strategies article on revenue growth .  

Naming the three small business loan roadblocks

With increased competition ahead, banks have two choices to win new small business loans: offer better pricing or easier terms than competitors. However, both approaches could hurt bank returns and potentially increase risk for the institution. They could also make small business lending more efficient and borrower-friendly so that the financial institution can win, process and manage more loans without big staffing increases or added expenses. Indeed, the surveyed banks most frequently identified the following as their top challenges in small business lending:

About three-quarters of the nearly 200 respondents in ABA polling cited efficiency as a challenge when it comes to small business lending. The process/operations/staffing category was named by 62 percent of those surveyed, while 55 percent identified cost as a small-business lending challenge.

For most banks, the paper- and labor-intensive process of small business lending results in multiple handoffs between bank employees, frequent back-and-forth communications with customers and lengthy approval times, despite the small-balance nature of many small business loans.

“By the very nature of it, because it’s so transactionally based, loan operations can always be improved on,” said Alison Trapp, who leads the credit risk practice for Sageworks Advisory Services, during a recent  webinar on process improvement . “How we manage the flow of documents is a huge piece of loan ops; how we store them appropriately; how we get them to and from our lenders or appraisers or the third-party vendors that we use—all of that stuff really opens itself up to process improvement. I think everybody wants to bring in the loans more efficiently.”

Life of the loan: Let’s get digital

Digitizing the small business loan from beginning to end can reduce processing time, which allows banks and credit unions to provide quicker, more transparent decisions. Life-of-loan digitization also makes it easier for high-salaried lending and credit professionals to focus on those loan decision aspects that require more intense analysis—especially if they need not spend as much time on duplicative data entry and tracking down components of the application.

However, only a tiny fraction of small business loans (0.1 percent) are handled digitally end-to-end, according to a  2015 survey  of two dozen banks by Bain & Co. and SAP Value Management. The same survey found that only 8 percent of small business loan applications are submitted on digital channels. Smaller banks, in particular, tend to lag in lending technology adoption, which means they have tremendous opportunity to make small business loans more efficient and profitable.

End-to-end, but to which end? Build or buy?

While some banks build their own end-to-end solutions, others are working with technology partners to expedite their ability to originate, underwrite and close small business loans. The ABA report outlines three advantages for banks that partner with fintechs that offer an end-to-end digital lending solution:

Some fintech firms can also assist financial institutions with process improvement and change management to work through whichever policy and operational changes are required for meaningful efficiency improvements.

It’s common knowledge that banks able to innovate and leverage new digital lending technologies will be well-positioned to compete. Originating and servicing these loans must be cost-effective but there will be challenges to get there and win the SMB loan game. Competition, always a factor in the past, could grow even more intense. In solving the small business lending puzzle, it pays more than ever to keep the three top problems top of mind.

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Mary Ellen Biery is a research specialist at Sageworks , a financial information company that offers financial institutions lending, credit risk and portfolio risk solutions.

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Six problem-solving mindsets for very uncertain times

Great problem solvers are made, not born. That’s what we’ve found after decades of problem solving with leaders across business, nonprofit, and policy sectors. These leaders learn to adopt a particularly open and curious mindset, and adhere to a systematic process for cracking even the most inscrutable problems. They’re terrific problem solvers under any conditions. And when conditions of uncertainty are at their peak, they’re at their brilliant best.

Six mutually reinforcing approaches underly their success: (1) being ever-curious about every element of a problem; (2) being imperfectionists , with a high tolerance for ambiguity; (3) having a “dragonfly eye” view of the world, to see through multiple lenses; (4) pursuing occurrent behavior and experimenting relentlessly; (5) tapping into the collective intelligence , acknowledging that the smartest people are not in the room; and (6) practicing “show and tell” because storytelling begets action (exhibit).

Here’s how they do it.

1. Be ever-curious

As any parent knows, four-year-olds are unceasing askers. Think of the never-ending “whys” that make little children so delightful—and relentless. For the very young, everything is new and wildly uncertain. But they’re on a mission of discovery, and they’re determined to figure things out. And they’re good at it! That high-energy inquisitiveness is why we have high shelves and childproof bottles.

When you face radical uncertainty, remember your four-year-old or channel the four-year-old within you. Relentlessly ask, “Why is this so?” Unfortunately, somewhere between preschool and the boardroom, we tend to stop asking. Our brains make sense of massive numbers of data points by imposing patterns that have worked for us and other humans in the past. That’s why a simple technique, worth employing at the beginning of problem solving, is simply to pause and ask why conditions or assumptions are so until you arrive at the root of the problem. 1 This approach was originally developed by Sakichi Toyoda, the founder of Toyota.

Natural human biases in decision making, including confirmation, availability, and anchoring biases, often cause us to shut down the range of solutions too early. 2 Daniel Kahneman, Thinking, Fast and Slow , New York, NY: Farrar, Straus and Giroux, 2011. Better—and more creative—solutions come from being curious about the broader range of potential answers.

One simple suggestion from author and economist Caroline Webb to generate more curiosity in team problem solving is to put a question mark behind your initial hypotheses or first-cut answers. This small artifice is surprisingly powerful: it tends to encourage multiple solution paths and puts the focus, correctly, on assembling evidence. We also like thesis/antithesis, or red team/blue team, sessions, in which you divide a group into opposing teams that argue against the early answers—typically, more traditional conclusions that are more likely to come from a conventional pattern. Why is this solution better? Why not that one? We’ve found that better results come from embracing uncertainty. Curiosity is the engine of creativity.

We have to be comfortable with estimating probabilities to make good decisions, even when these guesses are imperfect. Unfortunately, we have truckloads of evidence showing that human beings aren’t good intuitive statisticians.

2. Tolerate ambiguity—and stay humble!

When we think of problem solvers, many of us tend to picture a poised and brilliant engineer. We may imagine a mastermind who knows what she’s doing and approaches a problem with purpose. The reality, though, is that most good problem solving has a lot of trial and error; it’s more like the apparent randomness of rugby than the precision of linear programming. We form hypotheses, porpoise into the data, and then surface and refine (or throw out) our initial guess at the answer. This above all requires an embrace of imperfection and a tolerance for ambiguity—and a gambler’s sense of probabilities.

The real world is highly uncertain. Reality unfolds as the complex product of stochastic events and human reactions. The impact of COVID-19 is but one example: we address the health and economic effects of the disease, and their complex interactions, with almost no prior knowledge. We have to be comfortable with estimating probabilities to make good decisions, even when these guesses are imperfect. Unfortunately, we have truckloads of evidence showing that human beings aren’t good intuitive statisticians. Guesses based on gut instinct can be wildly wrong. That’s why one of the keys to operating in uncertain environments is epistemic humility, which Erik Angner defines as “the realization that our knowledge is always provisional and incomplete—and that it might require revision in light of new evidence.” 3 Erik Angner, “Epistemic humility—knowing your limits in a pandemic,” Behavioral Scientist , April 13, 2020,

Recent research shows that we are better at solving problems when we think in terms of odds rather than certainties. 4 Annie Duke, Thinking in Terms of Bets: Making Smarter Decisions When You Don’t Have All the Facts , New York, NY: Portfolio/Penguin, 2018. For example, when the Australian research body Commonwealth Scientific and Industrial Research Organisation (CSIRO), which owned a core patent on the wireless internet protocol, sought royalties from major companies, it was initially rebuffed. The CSIRO bet that it could go to court to protect its intellectual property because it estimated that it needed only 10 percent odds of success for this to be a good wager, given the legal costs and likely payoff. It improved its odds by picking the weakest of the IP violators and selecting a legal jurisdiction that favored plaintiffs. This probabilistic thinking paid off and eventually led to settlements to CSIRO exceeding $500 million. 5 CSIRO briefing to US Government, December 5, 2006. A tolerance for ambiguity and a willingness to play the odds helped the organization feel its way to a good solution path.

To embrace imperfectionism with epistemic humility, start by challenging solutions that imply certainty. You can do that in the nicest way by asking questions such as “What would we have to believe for this to be true?” This brings to the surface implicit assumptions about probabilities and makes it easier to assess alternatives. When uncertainty is high, see if you can make small moves or acquire information at a reasonable cost to edge out into a solution set. Perfect knowledge is in short supply, particularly for complex business and societal problems. Embracing imperfection can lead to more effective problem solving. It’s practically a must in situations of high uncertainty, such as the beginning of a problem-solving process or during an emergency.

Good problem solving typically involves designing experiments to reduce key uncertainties. Each move provides additional information and builds capabilities.

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3. take a dragonfly-eye view.

Dragonfly-eye perception is common to great problem solvers. Dragonflies have large, compound eyes, with thousands of lenses and photoreceptors sensitive to different wavelengths of light. Although we don’t know exactly how their insect brains process all this visual information, by analogy they see multiple perspectives not available to humans. The idea of a dragonfly eye taking in 360 degrees of perception 6 Philip Tetlock and Dan Gardner, Superforecasting: The Art and Science of Prediction , New York, NY: Crown, 2015. is an attribute of “superforecasters”—people, often without domain expertise, who are the best at forecasting events.

Think of this as widening the aperture on a problem or viewing it through multiple lenses. The object is to see beyond the familiar tropes into which our pattern-recognizing brains want to assemble perceptions. By widening the aperture, we can identify threats or opportunities beyond the periphery of vision.

Consider the outbreak of HIV in India in the early 1990s—a major public-health threat. Ashok Alexander, director of the Bill & Melinda Gates Foundation’s India Aids Initiative, provided a brilliant example of not just vision but also dragonfly vision. Facing a complex social map with a rapidly increasing infection rate, he widened the problem’s definition, from a traditional epidemiological HIV transmission model at known “hot spots,” to one in which sex workers facing violence were made the centerpiece.

This approach led to the “Avahan solution,” which addressed a broader set of leverage points by including the sociocultural context of sex work. The solution was rolled out to more than 600 communities and eventually credited with preventing 600,000 infections. The narrow medical perspective was sensible and expected, but it didn’t tap into the related issue of violence against sex workers, which yielded a richer solution set. Often, a secret unlocks itself only when one looks at a problem from multiple perspectives, including some that initially seem orthogonal.

The secret to developing a dragonfly-eye view is to “anchor outside” rather than inside when faced with problems of uncertainty and opportunity. Take the broader ecosystem as a starting point. That will encourage you to talk with customers, suppliers, or, better yet, players in a different but related industry or space. Going through the customer journey with design-thinking in mind is another powerful way to get a 360-degree view of a problem. But take note: when decision makers face highly constrained time frames or resources, they may have to narrow the aperture and deliver a tight, conventional answer.

Want better strategies? Become a bulletproof problem solver

Want better strategies? Become a bulletproof problem solver

4. pursue occurrent behavior.

Occurrent behavior is what actually happens in a time and place, not what was potential or predicted behavior. Complex problems don’t give up their secrets easily. But that shouldn’t deter problem solvers from exploring whether evidence on the facets of a solution can be observed, or running experiments to test hypotheses. You can think of this approach as creating data rather than just looking for what has been collected already. It’s critical for new market entry—or new market creation. It also comes in handy should you find that crunching old data is leading to stale solutions.

Most of the problem-solving teams we are involved with have twin dilemmas of uncertainty and complexity, at times combined as truly “wicked problems.” 7 A term coined in a now famous 1973 article: Horst W. J. Rittel and Melvin Webber, “Dilemmas in a general theory of planning,” Policy Sciences , 1973, Number 4, pp. 155–69. For companies ambitious to win in the great unknown in an emerging segment—such as electric cars or autonomous vehicles, where the market isn’t fully established—good problem solving typically involves designing experiments to reduce key uncertainties, not just relying on existing data. Each move (such as buying IP or acquiring a component supplier) and each experiment (including on-road closed tests) not only provides additional information to make decisions but also builds capabilities and assets that support further steps. Over time, their experiments, including alliances and acquisitions, come to resemble staircases that lead to either the goal or to abandonment of the goal. Problem-solving organizations can “bootstrap” themselves into highly uncertain new spaces, building information, foundational assets, and confidence as they take steps forward.

Risk-embracing problem solvers find a solution path by constantly experimenting. Statisticians use the abbreviation EVPI—the expected value of perfect information—to show the value of gaining additional information that typically comes from samples and experiments, such as responses to price changes in particular markets. A/B testing is a powerful tool for experimenting with prices, promotions, and other features and is particularly useful for digital marketplaces and consumer goods. Online marketplaces make A/B testing easy. Yet most conventional markets also offer opportunities to mimic the market’s segmentation and use it to test different approaches.

The mindset required to be a restless experimenter is consistent with the notion in start-ups of “failing fast.” It means that you get product and customer affirmation or rejection quickly through beta tests and trial offerings. Don’t take a lack of external data as an impediment—it may actually be a gift, since purchasable data is almost always from a conventional way of meeting needs, and is available to your competitors too. Your own experiments allow you to generate your own data; this gives you insights that others don’t have. If it is difficult (or unethical) to experiment, look for the “natural experiments” provided by different policies in similar locations. An example would be to compare outcomes in twin cities, such as Minneapolis–St. Paul.

It’s a mistake to think that your team has the smartest people in the room. They aren’t there. They’re invariably somewhere else. Nor do they need to be there if you can access their intelligence via other means.

5. Tap into collective intelligence and the wisdom of the crowd

Chris Bradley, a coauthor of Strategy Beyond the Hockey Stick , 8 Chris Bradley, Marin Hirt, and Sven Smit, Strategy Beyond the Hockey Stick: People, Probabilities, and Big Moves to Beat the Odds , Hoboken, NJ: Wiley, 2018. observed that “it’s a mistake to think that on your team you have the smartest people in the room. They aren’t there. They’re invariably somewhere else.” 9 For more from Chris Bradley, in a conversation with Rob McLean, see “ Want better strategies? Become a bulletproof problem solver ,” August 2019. Nor do they need to be there if you can access their intelligence via other means. In an ever-changing world where conditions can evolve unpredictably, crowdsourcing invites the smartest people in the world to work with you. For example, in seeking a machine-learning algorithm to identify fish catch species and quantities on fishing boats, the Nature Conservancy (TNC) turned to Kaggle and offered a $150,000 prize for the best algorithm. This offer attracted 2,293 teams from all over the world. TNC now uses the winning algorithm to identify fish types and sizes caught on fishing boats in Asia to protect endangered Pacific tuna and other species.

Crowdsourced problem solving is familiar in another guise: benchmarking. When Sir Rod Carnegie was CEO of Conzinc Riotinto Australia (CRA), he was concerned about the costs of unscheduled downtime with heavy trucks, particularly those requiring tire changes. He asked his management team who was best in the world at changing tires; their answer was Formula One, the auto racing competition. A team traveled to the United Kingdom to learn best practice for tire changes in racetrack pits and then implemented what it learned thousands of miles away, in the Pilbara region of Western Australia. The smartest team for this problem wasn’t in the mining industry at all.

Of course, while crowdsourcing can be useful when conventional thinking yields solutions that are too expensive or incomplete for the challenge at hand, it has its limitations. Good crowdsourcing takes time to set up, can be expensive, and may signal to your competitors what you are up to. Beware of hidden costs, such as inadvertently divulging information and having to sieve through huge volumes of irrelevant, inferior suggestions to find the rare gem of a solution.

Accept that it’s OK to draw on diverse experiences and expertise other than your own. Start with brainstorming sessions that engage people from outside your team. Try broader crowdsourcing competitions to generate ideas. Or bring in deep-learning talent to see what insights exist in your data that conventional approaches haven’t brought to light. The broader the circles of information you access, the more likely it is that your solutions will be novel and creative.

Rookie problem solvers show you their analytic process and math to convince you they are clever. Seasoned problem solvers show you differently.

6. Show and tell to drive action

We started our list of mindsets with a reference to children, and we return to children now, with “show and tell.” As you no doubt remember—back when you were more curious!—show and tell is an elementary-school activity. It’s not usually associated with problem solving, but it probably piqued your interest. In fact, this approach is critical to problem solving. Show and tell is how you connect your audience with the problem and then use combinations of logic and persuasion to get action.

The show-and-tell mindset aims to bring decision makers into a problem-solving domain you have created. A team from the Nature Conservancy, for instance, was presenting a proposal asking a philanthropic foundation to support the restoration of oyster reefs. Before the presentation, the team brought 17 plastic buckets of water into the boardroom and placed them around the perimeter. When the foundation’s staff members entered the room, they immediately wanted to know what the buckets were for. The team explained that oyster-reef restoration massively improves water quality because each oyster filters 17 buckets of water per day. Fish stocks improve, and oysters can also be harvested to help make the economics work. The decision makers were brought into the problem-solving domain through show and tell. They approved the funding requested and loved the physical dimension of the problem they were part of solving.

Rookie problem solvers show you their analytic process and mathematics to convince you that they are clever. That’s sometimes called APK, the anxious parade of knowledge. But seasoned problem solvers show you differently. The most elegant problem solving is that which makes the solution obvious. The late economist Herb Simon put it this way: “Solving a problem simply means representing it so as to make the solution transparent.” 10 Herbert Simon, The Sciences of the Artificial , Cambridge, MA: MIT Press, 1969.

To get better at show and tell, start by being clear about the action that should flow from your problem solving and findings: the governing idea for change. Then find a way to present your logic visually so that the path to answers can be debated and embraced. Present the argument emotionally as well as logically, and show why the preferred action offers an attractive balance between risks and rewards. But don’t stop there. Spell out the risks of inaction, which often have a higher cost than imperfect actions have.

The mindsets of great problem solvers are just as important as the methods they employ. A mindset that encourages curiosity, embraces imperfection, rewards a dragonfly-eye view of the problem, creates new data from experiments and collective intelligence, and drives action through compelling show-and-tell storytelling creates radical new possibilities under high levels of unpredictability. Of course, these approaches can be helpful in a broad range of circumstances, but in times of massive uncertainty, they are essential.

Charles Conn is an alumnus of McKinsey’s Sydney office and is a board member of Patagonia and former CEO of the Rhodes Trust. Robert McLean is an alumnus of the Sydney office and is the advisory-board chair of the Nature Conservancy Australia. They are the authors of Bulletproof Problem Solving: The One Skill That Changes Everything (Wiley, 2018).

This article was edited by David Schwartz, an executive editor in the Tel Aviv office.

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business loan problem solving

Loan or Investment Formulas

Copyright © 1996–2022 by Stan Brown,

Summary: Compound interest can work for you or against you. Whether you’re taking out a loan or making an investment , either way it’s the same set of formulas. This page gives you the formulas, shows where they came from, and works through lots of examples. Excel workbooks are also provided.

Just the Formulas, Ma’am

Some variables, the master formula, payment amount, number of payments, original amount, interest rate, payment amount for an investment, number of payments for an investment, other streams of payments, excel workbooks, ti-83/84 calculator, online calculator.

“Don’t make me wade through all that algebra,” I hear you yell. “Just give me the formulas!” Here ya go; there’s also an Excel workbook available for download. (These formulas weren’t brought down from heaven by an archangel. If you want to see the derivations, which aren’t really all that hard, they’re given later in this page.)

All formulas apply when payments are made at the end of each period , and please understand that results are approximate . The variable names should be pretty straightforward, but I explain them below .

If payments are made at the beginning of each period , then esentially you have N−1 payments on a principal of A−P. In words: before substituting in the formulas you subtract 1 from the number of payments, and you subtract one payment amount from the principal. This works because the end of each period is the start of the next period.


Fairly often in the newsgroup , queries like this one were posted:

I was hoping someone could provide me with the formula for determining compounding interest problems. I have a formula, but I’m not sure what numbers plug in where. Help. This is as far as I understand: T=P(1+i)^n

Another perennial favorite:

How much must I pay into a savings account every month to accumulate $200,000 in ten years, if the account pays 5%?

Finally, here’s a question I hope you get to ask one day:

I just won the lottery. The prize is $26 million, paid as $1.3 million a year; or I can take a lump sum of $16 million. What should I do?

These are various forms of the present value, future value, and annuity problems . They all have to do with an investment or a stream of payments, and how the value changes over time. To update the old saying slightly, “A bird in the hand is worth 1.06 in the bush.”

The general idea is that there are two things going on at the same time in a loan or an investment:

This page will develop the formulas to solve all sorts of present-value or future-value problems. These cover loans, savings accounts and other investments, mortgages, and annuities. As you’ll see, though there are lots of names for these problems they’re really all the same thing looked at from different angles.

Because loans seem to be the most popular problems, I’ll start with them. After that, I’ll adapt the formulas for other sorts of future-value problems. For example, a loan is the mirror image of making an initial big deposit in a savings account and then drawing out a constant sum every month until there’s nothing left. The total of all payments/withdrawals will eventually reach the total of the initial loan/deposit plus accrued interest.

The formulas and examples in this page are all valid algebraically, but they should be considered as just approximations financially.

For example, you might compute a payment amount of $65.4321. Obviously it’s not possible to make a payment to greater precision than one cent, so you’ll be paying either $65.43 or $65.44 a month. Either way the next month’s balance will be slightly different from what you might compute from the formula. Over time, these differences may either grow or cancel themselves out.

Therefore, in a real loan situation you should probably expect to see minor discrepancies from the results of the computations here.

Beyond mere rounding, you may also find differences because financial institutions apply traditional or creative accounting techniques such as the “rule of 78” or the 360/365 rule. Your best protection is to read all documents carefully and, if necessary, use the formulas on this page to check the figures you’re given.

If you haven’t spent much time in , you may be puzzled by the caret (^) in some of the formulas that follow. caret is pronounced “to the power of”. Yes, HTML does support superscripts; but not everyone’s browser renders them clearly, and I understand that some systems for the visually impaired also don’t distinguish them.

All of these problems assume that the payment amounts are all equal , except possibly for an initial or final payment that is different. It’s possible to solve problems with unequal payments, but the calculations are quite a lot messier; for that sort of problem a spreadsheet is your best tool.

The method I’ll use for solving these problems is to come up with a formula for B_n, the loan balance after n payments. Then a few transformations of that formula will show how to solve for the other variables.

To work out that formula for B_n, what I’ll do is figure the balance at the end of the first period, second period, and maybe a couple more, and look for a pattern.

When the loan is first taken out , no payments have been made, so the loan balance is the same as the loan amount:

What happens at the end of the first period ? Interest has accrued. The interest rate per period is i, and the balance is B_0, so the accrued interest is i times B_0, which equals iA; this gets added to the loan balance. On the other hand, the payment P is subtracted. Therefore:

What happens to the loan balance at the end of the second period ? We add in the interest on the previous balance, which is i times B_1, and subtract the next payment P:

This process repeats at the end of each period: add in the accrued interest and subtract the payment . I won’t show all the steps for B_4, but you should be able to work them out for yourself.

Now we have enough information to write a general expression for B_n, the loan balance after the nth payment. Look at the first term in B_0, B_1, B_2, B_3, B_4: it’s always A times the nth power of (1+i). (Remember that (1+i)^0 = 1, so A = A(1+i)^0.) This gives us for a start:

The first part of this formula is known as the future value of the principal sum A. It reflects the fact that money grows in value over time. The second part, the “something”, is the effect of the payments. Their value also grows over time; or, to put it another way, a payment made early has more effect toward paying off the loan than the same amount paid later.

Now let’s look at the “something”, the remaining terms. We can summarize them as

This is a geometric series, as becomes clear if we write in the implied exponent of 1 and use the fact that P = P(1+i)^0:

which means that the complete formula is

This master formula relates the balance B_n after n periods, the original amount A, the payment P, and the interest rate i per period. It’s also used in the Excel workbook that accompanies this page.

Everything else will derive from that master formula. So if you need to memorize formulas, this is the only one you need to memorize.

If you know the interest rate i, loan amount A, and payment P, you can use equation 1 to find the current balance remaining after n payments. This is sometimes called the payoff amount . (In bygone days, the actual payoff amount was frequently greater than that, owing to the “rule of 78”. But in the U.S. in recent years the truth-in-lending laws have made the rule of 78 and other prepayment penalties much less common.)

You have a $18,000 car loan at 14.25% for 36 months. You have just made your 24th payment of $617.39 and would like to know the payoff amount.

Solution:  14.25% interest a year is 1.1875% per month, so i = 0.011875. Substitute P = 617.39, A = 18000, n = 24 into equation 1 to solve for the current balance:

B_n = A(1+i)^n − (P/i)[(1+i)^n − 1]

B_n = 18000*1.011875^24 − (617.39/0.011875)(1.011875^24−1)

B_n = 6866.97

After 24 months, which is 2/3 or 67% of the loan term, you’ve paid off only 62% of the loan. That’s the effect of the accrued interest, and it’s even more lopsided for longer loans, as you’ll see in   example 2 .

Finding Other Loan Numbers

Equation 1 showed how to find the current balance, or payoff amount, on a loan. But more likely you want to know what the payment amount will be for a certain number of payments, or how many payments of a certain amount will be required. The most obvious times when you’d ask these questions are when you’re buying a car on a 3-year or 4-year loan (or longer), or a house on a 30-year loan.

The next two sections show how you can find both the number of payments N and the payment amount P by doing some algebra on equation 1 . When the loan is paid off, the remaining balance B_n = 0, so set B_N to 0 in equation 1 and solve for either P or N.

Let’s solve first for P.

B_N = 0 after the final (Nth) payment at the end of the loan, and therefore

Multiply top and bottom by (1+i)^-N to simplify:

There used to be published tables of (1+i)^-N for many increments of i and N. Nowadays, of course, we just punch up the numbers on the calculator, and the answer pops out. You can also use the Excel workbook that accompanies this page.

You are buying a $250,000 house, with 10% down, on a 30-year mortgage at a fixed rate of 7.8%. What is the monthly payment?

Solution:  30 years is 360 months, and the monthly interest rate is 7.8%/12, or 0.0065. The loan amount is 90% of $250,000, which is $225,000. Substitute in equation 2 :

P = iA / [1 − (1+i)^-N]

P = 0.0065*225000 / [1 − 1.0065^-360]

P = 1619.708627 → $1619.71 is the monthly payment

The bank will normally round a loan payment up to the next penny, or even the next dollar, leaving the last payment to be slightly smaller than the rest.

By the way, it can be interesting (and horrifying) to compute B_12, the loan balance after the first year’s payments on that loan. Using equation 1 , you’ll find that

B_12 = 223044.55

You’ve made payments of $19,436.52 (12 times 1619.71), but not even $2000 of that went to the principal of the loan. It’s a shocking fact that every homeowner faces at some point in a mortgage: during the first year practically all your payments go to interest.

Now you know to calculate the payment amount when the number of payments is predetermined. What about the other direction?

Suppose you predetermine the payment amount and need to know the number of payments? This is a less common situation, but here are two real-life examples:

Take the log of both sides:

And there you have it: the number of payments N on a loan of amount A with interest rate i and payment amount P . (You can use any logarithm base, as long as both logs use the same base.) You can also use the Excel workbook that accompanies this page.

Aunt Sally offers to lend you $3500 at 6% for that new home theater system you want. If you pay her back $100 a month, how long will it take?

Solution:  6% per year is 0.5% per month, or 0.005. P = 100 and A = 3500. Substitute in equation 3 :

N = −log(1−iA/P) / log(1+i)

N = −log(1−0.005*3500/100) / log(1.005)

N = −log(0.825)/log(1.005)

Any base of logarithms will give the same final answer, so use base-10 logs:

N = −(−0.083546)/(0.0021661)

You’ll pay Aunt Sally 38 payments of $100 each, and then a smaller final payment to finish the loan.

How much is that final payment? First find B_38, the loan balance after 38 payments. Use equation 1 to find that

B_38 = 56.83

You can either include that in your 38th payment or pay it separately as a 39th payment.

If you include it in the 38th payment, you will pay 37 monthly payments of $100.00 and a 38th payment of $156.83 .

If you make it a separate payment at the end of the 39th month, you’ll owe Aunt Sally 0.5% interest on the $56.83 for that month, so your final payment will be $56.83+(0.005×56.83) = $57.11. In that case you’ll pay Aunt Sally 38 payments of $100.00 and a 39th payment of $57.11 .

Suppose you pay Aunt Sally $15 a month instead of $100. How long will it take to pay off the loan then?

N = −log(1−0.005*3500/15) / log(1.005)

N = −log(−0.17)/log(1.005)

What’s up with that log of a negative number? Quite simply, at $15 a month you’ll never pay Aunt Sally off. The monthly interest on $3500 at 6% is 0.06×3500/12 = $17.50, so with a $15 payment your debt grows instead of shrinking.

The downloadable Excel workbook displays an error message if you enter impossible numbers like these into the computation of number of payments.

You have $15,000 in a 5% savings account, which is compounded monthly. How long will it take to run down the account if you withdraw $100 a month?

Solution:  This is a straight loan from you to the bank: A = 15000; i = 5%/12 = .004167; P =100, and you need to find N. Use equation 3:

N = −log(1−.004167*15000/100) / log(1.004167)

You can take out $100 a month for 235 months (almost 20 years). Since N is not a whole number, there will be a little money left in the account after your 235th withdrawal. You can use equation 1 to find that B_235 = $88.56. So at the end of the 235th month you can close the account by withdrawing $188.56, or you can take only the $100 and close out the account at the end of the 236th month. In that case you will have earned interest of (5%÷12)×88.56 = $0.37, so you’ll receive $88.93 at the end of the 236th month .

By the way, the minus sign in equation 3 may look a bit strange: how can a number of payments be negative? Actually, it’s not. Since 1−iA/P is between 0 and 1, its logarithm will be negative, so negating it as in equation 3 gives a positive number N.

Huh? What? Don’t you know that? Well, maybe not. You may know what monthly payment you can afford, and about what interest rate you’d be paying. And from that, you want to know how big a purchase you can afford.

You’re looking to buy furniture for your living room. You can afford to pay about $60 a month over the next three years, and your credit card charges 16.9% interest. How much furniture can you buy?

Solution:  P = 60, N = 36, and i = 16.9%/12 = 1.4083% = 0.014083. Use equation 4:

A = (P/i)[1 − (1+i)^-N]

A = (60/.014083)[1 − 1.014083^-36]

A = 1685.25

If you put the purchase on your credit card, at 16.9% interest you can afford to buy about $1685 worth of furniture.

Example 5a:   But you have your eye on a set that’s on sale for $1850. The saleswoman offers you a store credit card with a special promotional rate of 12% for three years. Now can you afford the furniture?

A = (60/.01)[1 − 1.01^-36]

A = 1806.45

At 12% interest, you can afford $1806.45 ,`which`is`not`quite`enough.`But` fortunately the saleswoman works on commission and agrees to knock an extra $50 off the price. (I make up these stories, so I can throw in a happy ending if I want!)

This one, unfortunately, is trickier. Mathematicians say that there is no closed-form solution for interest rate, meaning that no straightforward formula exists to provide an exact solution with i on the left and other variables and functions on the right, in a finite number of steps. You can still find i, but you have to work for it. Here are several methods to choose from:

Newton’s Method

Newton’s Method has the advantage that it’s very fast. More precisely, Newton’s Method finds the interest rate very quickly if it can find it at all. Newton’s Method can fail if your initial guess for the interest rate is too outlandish, but in the real world that’s not a problem because you usually have some idea of the actual interest rate.

You can read all about Newton’s Method at Mathworld. But briefly, Newton’s Method requires you to rewrite one of the equations involving interest rate so that the right-hand side is 0; the left-hand side is then called f(i). You then take the derivative, f′(i), and make an initial guess at the interest rate. From that guess i you form the next guess i new by the equation

i new = i − f(i)/f′(i)

and you repeat until there’s no change from one guess to the next. Usually this happens in less than half a dozen iterations.

f(i) = P − P (1+i)^-N − iA

f′(i) = N P (1+i)^(-N-1) − A

The equation for successive guesses in Newton’s Method is therefore

You’re thinking about leasing an $11,200 car, attracted by the advertisements of “no down payment”. The lease payment is $291 a month for four years. What is the effective interest rate you’d be paying on this lease?

Solution:  A = $11,200; P = $291; N = 4×12 = 48. Car loans in your area are quoted at around 12%, so start with i = 12%/year = .01/month. Using equation 8 , the equation to get each guess from the previous guess is

i new = i − [291 − 291(1+i)^-48 − 11200i] / [ 48×291(1+i)^-49 − 11200]

The computed guesses are 0.0094295242, 0.0094008156, 0.0094007411, 0.0094007411. Newton’s Method takes only four iterations to reach an answer of i = 0.0094007411 per month. Check that by substituting that in equation 2 —sure enough, we get P = $291.0000000. Therefore the annual rate is 12×0.94007411 = 11.28% .

Series Solution

Common opinion on Usenet has been that there’s no way to solve any of the first four equations for i, and that’s true enough if you’re looking for a closed-form solution. However, David Cantrell had the idea in late summer 2004 to apply reversion of series to equation 2 in his article A Series of Interest .

In an excellent example of academic integrity, after publishing his initial article Cantrell kept digging, found a 1963 article by H.E. Stelson in American Mathematical Monthly , and published a citation in a follow-up. My equation 7 is due entirely to Cantrell’s article, but I rearranged it slightly to simplify computation.

(In a further follow-up , Cantrell points out that the series converges when NP < 2A; in other words, when the total of all payments is less than double the principal. That is true for most loans, with the notable exception of home mortgages. For cases where the series does not converge, he offers a formula; see below .)

For background on reversion of series, see the Mathworld article Series Reversion .

Let’s repeat   example 6 to compare this method against Newton’s Method . With P = 291, N = 48, and A =11200, I computed u = 0.005043732 and i = 0.0094015005. This is just a bit higher than the true answer of 0.009400741, which is not surprising given that the next term in the series would have a minus sign. Still, it’s probably accurate enough: substituting in equation 2 gives a payment of $291.0049718, which is $291.00 to the nearest penny.

Approximate Solution by Formula

In cases where NP ≥ 2A, David Cantrell’s series solution doesn’t converge. NP ≥ 2A means that the total paid (number of payments times payment amount) is more than double the principal amount. The most common example is a home mortgage.

He was kind enough to call my attention not only to this limitation of the series solution but to his article Finding Interest Rate without Approximation or Root-Finding . In that article he gave an original formula that he developed to approximate i in a wide range of situations, even where the series solution fails. I have rearranged that formula slightly and changed the variable letters for consistency with this page:

Let’s work   example 6 one more time, to compare Cantrell’s approximation to the other solution methods. You’ll remember that Newton’s method got 0.94007411% a month or 11.28% a year, and the series solution got 0.94015005% a month, which is very slightly high, but still the same 11.28% a year to four significant figures.

To apply equation 9 , first compute q and then substitute it with the other quantities in the approximation for :

A = $11,200, P = $291, N = 48

q = log(1+1/48) / log(2) = 0.0297473434

q is just the base-2 logarithm of (1+1/N). Odds are your calculator can’t compute logs directly in base 2, so I’ve given the formula for changing the base of logarithms. It doesn't matter whether you use logs to base 10 or base e when computing q , as long as you use the same base for both logs. For the reasons, please see Changing the Base in my “ It’s the Law Too — the Laws of Logarithms ”.

i ≈ [ (1 + 291/11200)^(1/ q ) − 1 ]^ q − 1

i ≈ 0.93767347% a month or 11.25% a year

This is a bit lower than the other solutions, but still a good approximation considering that it’s much less work to obtain it.

But consider the situation in   example 2 . Let’s modify that example and use the principal, payment, and term to find the interest rate:

A = $225,000, P = $1619.71, N = 360

Notice that the total paid is more than double the principal amount:

NP = $583095.60 and 2A = $450,000

As predicted, Cantrell’s series solution does not converge. If we calculate equation 7 anyway, here’s what happens:

u = (1619.71×360/225000−1) / (360+1) = 0.004408687

i = 162860.6214

Equation 7 is unusable because the series fails to converge. Let’s try equation 9 :

q = log(1+1/360)/log(2) = 0.0040019306

i ≈ [ (1 + 1619.71/225000)^(1/ q ) − 1 ]^ q − 1

i ≈ 0.64645769% a month or 7.7575% a year

This is a decent approximation to the actual interest rate of 7.8000% a year. It’s certainly better than 162,800% a month!

( Newton’s method , with an initial guess of 0.4% a month, gives the answer 0.65000073 in seven iterations. This is almost exactly 7.8% a year. So you get more accuracy, at the cost of more work.)

Solving an Investment or Annuity

Good news! These are just variations on the loan theme .

For instance, a savings account is just a loan from you to the bank. The difference is that payments can move in either direction: you call them deposits when they increase your balance and withdrawals when they decrease your balance. Because of the way P was originally defined, you count a withdrawal as a positive payment P and a deposit as a negative payment P.

At the end of every month, you put $100 into a mutual fund that pays 6%, compounded monthly. How much will you have at the end of five years?

Solution: P = $100, i = 6%/12 = .005, A = 0 (because you start with nothing in the account). Use equation 1 :

but reverse the sign of P in the formula, because the payments are going to increase the balance and not reduce it as in a loan.

B_n = A(1+i)^N + (P/i)[(1+i)^N − 1]

B_60 = 0 + (100/.005)(1.005^60 − 1)

B_60 = $6977.00

At the end of five years you’ll have $6977.00.

An annuity is a contract, usually with an insurance company, for you to receive a fixed amount of money at stated intervals, usually monthly. This is also the same as a loan, except that the payments move only one way.

Whole life insurance works this way once you cash it in: you can take the cash value of the insurance or use it to buy an annuity. You can also purchase the annuity with a lump sum. (An insurance annuity is typically more complicated, because it factors in your life expectancy. The payments are lower than they would otherwise be, because the company guarantees to pay you until you die, or to pay your heirs for the stated period if you die early. Here we’re just concerned with a straight annuity that pays for a definite period.)

You want to purchase a 20-year annuity that will pay $500 a month. If the guaranteed interest rate is 4%, how much will the annuity cost?

Solution: P = 500, i = 4%/12 = .00333 N = 20×12 = 240. Use equation 4:

A = (500/.00333)[1 − 1.00333^-240]

A = $82,510.93

You need a one-time payment of $82,510.93 to fund the annuity. Since the total you’ll receive is $500×240 = $120,000, you might think you’re making out like a bandit. But even though it seems that way, this is just another illustration that the value of money grows over time, so that a smaller amount now is equivalent to a larger amount spread out over time.

The above example shows an ordinary annuity , one that pays at the end of each period. An annuity that pays at the beginning of each period is called an annuity due . As you’ll see in   example 11 , you have to make some adjustments in the formulas when computing for an annuity due.

Suppose you have a goal, and you need to map out a plan for how to reach it. In other words, you know a future value F that you want to reach, by making N periodic payments P that earn interest i.

To find P or N in this situation, proceed almost like solving a loan . Take equation 1 , which for investments is

Now set A=0 and B_n=F (your desired future value), and solve for the future value F:

and solve for P or N. Let’s start by solving for P:

Note: As with all these formulas, this one assumes that you make each payment at the end of a period, so that you reach your goal on the day you make your last deposit.

You’re saving up for a down payment on a house. You expect to buy in about five years, and you’ll be looking in the $250,000 range. You need to make at least a 10% down payment, plus $2500 for closing costs. If your money fund pays 5.5%, posted and compounded every month, how much a month do you need to deposit?

Solution:  N = 5×12 = 60; i = 5.5%/12 = .004583; F = 10% of $250,000 + $2500  = 27,500. Use equation 5 :

P = iF / [(1+i)^N − 1]

P = .004585*27500 / [(1.004583^60 − 1]

You need to put almost $400 a month into that money fund to meet your goal.

Suppose you need to meet an investment goal. You know how much a month you can save, and what interest you’ll earn. How long it will take to reach your goal?

To figure this, just solve equation 5 for N:

Take log of both sides (to any base):

On the same day every year, you put $2000 into stocks. If the market rises 8% a year, how many years will it take you to accumulate $40,000?

Solution:  F = 40,000; P = 2000; i = .08. Use equation 6:

N = log(1+iF/P) / log(1+i)

N = log(1+.08*40000/2000)/log(1+.08)

N = log(2.6)/log(1.08)

Answer: You’ll pass your goal when you make the payment at the end of the 13th year.

Have you won the lottery? Congratulations! You’ll quickly find that the actual prize is less—much less—than advertised, because of the time value of money. For instance, $1 million a year for 20 years is worth a good deal less than $20 million now (not to mention the tax bite either way). How can you decide whether to take the lump-sum buyout you’ll be offered?

You’ve won the Freedonia State Lottery. The prize is $4 million in annual payments of $200,000. The state offers you a lump sum, in lieu of payments, of $3 million now. Should you take it? If you can figure the real interest rate, you can decide whether you should take the stream of payments, or take the lump sum and invest it yourself at a better rate.

If payments were at the end of each period, this would be straightforward: A = $3 million, P = $200,000, N = 20. But since the first $200,000 payment comes at the start of the first period, the 20th and last payment comes at the start of the 20th year, which is the end of the 19th year. So really you have N = 20−1 = 19. That first $200,000 payment, at the start of the first year, has to be handled separately. To keep the comparison correct, you also exclude that same $200,000 from the offered lump sum, so A = $3,000,000 − 200,000 = $2,800,000.

(A correspondent asked, “What happened to the first $200,000?” The answer is that nothing happened to it: either way you get that first $200,000 at the beginning of the stream of payments. If you take the lump sum, you also get the other $2,800,000, for a total of $3,000,000. If you take the stream of payments, you get $200,000 a year for 19 more years. So you’re not weighing $3,000,000 now against $4,000,000 in payments. Since either way you get the first $200,000 now, the difference between the plans is an extra $2,800,000 now versus 19 more payments of $200,000 later.)

So: A = $2,800,000, P = $200,000, N = 19. Let’s use Newton’s Method . Guess 10% as the initial interest rate, since the stock market sometimes does better than that. (This time the payments are annual, so you don’t divide by 12.) equation 8 becomes

i_new = [200000 − 200000 (1+i)^-19 − 2800000i] / [ 19×200000 (1+i)^-20 − 2800000]

and Newton’s method gives 0.0495777, 0.0358844, 0.0328139, 0.0325979, 0.0325968, 0.0325968. In six iterations we have about 3.26% as the interest rate implicit in the state’s offer of a lump sum. You conclude that you would do better to take the lump sum of $3 million and invest it yourself rather than to take the $4 million in payments over time. (This ignores the tax consequences of the choice. If you’re actually in this situation, consult a tax professional!)

For comparison, the series (my equation 7 ) finds u =0.0178571429, i = 0.0326109732, which gives P = $200,025. As you saw above, Newton’s Method took 6 iterations to find i = 0.0325967876, which gives P = $200000.

Now work the lottery example forward: suppose you invest the $3 million at 5%. How much could you get every year if you take $200,000 at the start of the first year?

P = .05 * 2,800,000 / [1 − 1.05^-19]

P = $231,686.03 a year (when i = 5%)

Two Excel workbooks are available for download.

In this workbook, the worksheets are all protected: use the Tab key to move through the input cells. The protection keeps you from accidentally deleting a formula, but you can unlock any worksheet by right-clicking on the tab and selecting Unprotect Sheet . No password is needed.

Caution: Depending on your Excel settings, you may get a warning about protected mode, or macro content, or both. Look for this below the Excel ribbon and above the worksheet. If you save the workbook to your computer, you should only have to click Enable Editing and Enable Macros once for each workbook.

For one specific case — frequency of payment different from the compounding period, which I understand is the norm in Canada — you can use this online Mortgage/Loan Calculator from the Government of Canada. You can find numerous others with a Web search for mortgage calculator Canada .

The TI-83 and TI-84 calculators come with a package of financial applications, including a “solver” for loan and investment problems. To access it, press [APPS] [1] [1] on most models, or [2nd] [x -1 ] [1] [1] on the original TI-83.

Timothy Mayes offers a detailed TI-84 Plus Tutorial on solving these loan and other financial problems.

Jaye Mosier has created a “pallet” of calculations using the formulas in this article. You can find it under the title Browns Loan or Investment Formulas .

Updates and new info:

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Find the best business loan rates (2023)

business loan problem solving

10 Common Cash-Flow Problems Facing Small Businesses

business loan problem solving


The cash that comes into your business is essential to keep it going, but companies often fall short on funds. Unfortunately, cash-flow problems are the top reason small businesses fail. Indeed, 82% of small businesses don’t succeed because they experience cash-flow issues, according to Visual Capitalist , an investment- and business-focused online publisher.

Don’t become a cash-flow problem statistic. Find out what the most common cash-flow challenges are so you can effectively manage or even avoid them. 

Related: Why Small Businesses Fail (and How You Can Succeed)

What Are Cash-Flow Problems?

Cash-flow problems are when there isn’t enough money coming into a business to pay operational expenses or make necessary investments. Too much money is moving out of your business and not enough is moving into it.

What Are the Main Causes of Cash-Flow Problems for Small Businesses?

Many factors can cause cash-flow challenges for small businesses, some of which are outside your control, such as slow seasons, rising operational costs or higher priced goods. Cash-flow issues may also arise when a business is looking to expand but lacks enough capital to do so. 

Not surprisingly, cash flow is the second most cited challenge small business owners are facing, according to a 2022 SCORE survey , right after getting customers. In fact, more than a third of business owners agree.

That said, cash-flow problems are often the result of common issues you can fix or avoid. Here are some of the most common sources of cash-flow problems for small businesses.

1. Inflation

Inflation has caused prices to go up for nearly everything. Businesses are spending more to maintain inventory and supplies. Utility costs are going up too, as are rent rates. 

Additionally, inflation has led to increases in the prime rate , which equates to higher interest rates for credit cards and loans. 

Inflation also affects consumer behavior, with many would-be buyers buckling down where they can, translating to fewer sales for businesses.

How to Solve the Problem:

While you can’t single-handedly rectify inflation, you can adjust your behaviors to push back. For example, see where you can reduce your expenses (e.g., subscriptions, office costs, travel). 

Also, think about new ways to market yourself to attract buyers. For instance, you might offer special promotions to encourage spending or establish partnerships with other brands to drive more traffic to your business. 

Related: 9 Ways Small Business Owners Can Combat Inflation

2. Supply-Chain Issues

Many businesses are experiencing a trickle-down effect of supply-chain issues on their cash flow. Ultimately, the longer it takes for businesses to get inventory or supplies needed to offer their services, the longer it takes to stock items they can sell or to take on new work. With product shipping delays, there’s less potential for cash to come into the business.

See how you can improve your inventory forecasts and better time your orders, taking into account longer logistics timelines. Also, consider buying in bulk for items you know you’ll need and use frequently. Additionally, while you want to maintain the quality of your product or service, think about ways to stretch the useful life of equipment and noncritical supplies to reduce ordering needs.

Need funds to purchase inventory and supplies?

3. ineffective receivables management and slow payments.

Another common cash-flow problem is inaccurate and inefficient accounting and slow invoice payments. Some small businesses use outdated technologies or even pen and paper to keep track of their books and manage their receivables.

If you’re still using paper invoices and accepting checks, which can take some time to clear, it may be time to upgrade. Instead of using a paper invoice, invoice electronically and make it clear that payment is due at a specific time. 

Thanks to the widespread adoption of payment-processing technologies , slow invoice payments are becoming less and less of a cash-flow management problem. Indeed, credit cards , debit cards and other types of electronic fund transfers are much faster and more reliable. They also create a record of the funds you’ve received.

4. Overspending

It can be difficult to determine which investments are essential to your business. If you don’t plan accordingly, you could over-invest and go over budget. Businesses that overspend on software, office space and perks will often run into cash-flow problems.

The business services landscape is changing all the time. Some solutions may become obsolete, and others may seem like a good idea at first but don’t turn out to provide any value. Unfortunately, it isn’t uncommon for small businesses to get locked into contractual agreements with companies that don’t provide a return on investment.

Your first step should be  establishing a spending budget based on cash flow. This will help you set a baseline for your spending habits. Then, create a plan for your spending. For example, if you intend to invest in a new software environment, map out beforehand how each piece of software will work together to drive value.

Graphic of a storefront with a faucet at the top and a dollar sign coming out with wilted flowers all around

5. Overestimating Future Sales

If your sales numbers have been on an upward trend for months, it can be tempting to assume they’ll stay that way. Some small businesses run into cash-flow problems because they wager the sales they expect tomorrow to fund the investments they want to make today.

This is a risky strategy. You can’t guarantee future sales; sometimes, a sunny perspective can cloud your judgment.

Because you need a sales forecast to create a business plan, make sure your estimates are based on past data if you have it. Break down your sales into unit parts, and use averages to keep your sales estimates realistic.

6. Bad Pricing Models

Pricing products and services is one of the most challenging components of running a small business. While it can be relatively easy to determine pricing if you’re selling commodities or consumer goods, it gets fuzzy when you’re selling a unique service or product.

If you price too high, you could spook buyers. If you price too low, you could miss out on revenue. Both problems will impact your cash flow.

To get the pricing right, pay attention to your competitors and any factors that may affect your market. You don’t necessarily want to undercut your competitors’ prices, especially if your product is superior. But you’ll need to keep your price attainable for your target market if you want to make sales.

Infographic illustrating common cash-flow problems in business, such as overspending, seasonal challenges and supply-chain issues, among others

7. Poor Employee Management

Employee salaries and wages are a large part of your outgoing expenses. Therefore, poor employee management can lead to cash-flow problems — and possibly layoffs.

For example, if you rely on shift workers to operate your business, overbooking employee shifts could lead to unnecessary expenses that don’t translate into returns. High rates of employee turnover, job redundancies and a lack of automation also come with avoidable costs.

One of the best ways to avoid cash-flow problems like these is to cross-train employees to fill more roles as needed in your business. If you’re losing employees quickly and often, create more favorable working conditions to reduce turnover. Also, introduce new technology to automate repetitive processes and do more with less manpower.

8. Seasonal Challenges

Many small businesses are affected by seasonal changes in sales and revenue, which impact cash flow. Businesses that sell consumer goods, for example, can expect increased sales during the holiday season and slower sales during other times of the year.

The best way to avoid cash-flow problems that are seasonal is to plan your investments accordingly. Use data from past years to plan how you spend and save cash.

9. Inadequate Cash Reserves

Every business should maintain a cash reserve to cover expenses during slow or difficult times. Without one, you might need to turn to investors for capital, which might require you to give up equity, or you might apply for debt financing to cover costs.

To create a cash reserve, determine how much you spend each month. If you operate a seasonal business, calculate your expenses for different times of the year and use the most expensive season as a model. Then, put money aside incrementally until you have a safety net.

The size of your reserve depends on what makes you comfortable. Many financial experts recommend consumers put aside emergency funds to cover 3-6 months of expenses.

10. Difficulties in Obtaining Financing

Many small businesses depend on financing products, such as business loans and lines of credit , to operate and expand. However, obtaining financing may be difficult for some companies, resulting in a serious cash-flow problem.

A business owner could be denied a business loan for various reasons, including bad credit , no credit or inadequate collateral. Additionally, many banks won’t approve a business loan to be used to address cash-flow problems as the business is showing signs of financial strain.

If you’re denied  a business loan or a line of credit, your best move is to find out why and work to remedy this issue. It can take time to build credit, but you can also try to cut costs to increase cash flow or make changes to your business plan to make it stronger.

You can also look for alternatives to conventional financing, such as an online marketplace. Some business loans are available even to businesses with bad credit, and some online lenders consider factors other than credit ratings to determine if a company qualifies for financing.

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How to manage cash-flow problems in your business.

Every business faces difficult financial times at some point. However,  you can take  plenty of cost-cutting measures to fix cash-flow problems. Sometimes, an adjustment in business strategy is all you need to stay cash- positive . Other times, you might perform a cost/benefit analysis to see if a business loan can help . 

At the end of the day, with the right steps, you can get through your cash-flow challenges and keep your business growing.

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What is a Problem Loan?

Understanding problem loans, how institutions can identify problem loans, options to rectify a problem loan, problem loan.

A problem credit or an impaired asset

A problem loan is often referred to as a problem credit , or an impaired asset since, counterintuitively, loans are an asset for a creditor (as opposed to a liability for the borrower). 

In simple terms, a problem loan is one that poses a “challenge” for a lender. It may occur when the borrower ceases to make interest or principal payments (delinquency) or where repayment of the loan, as per the terms of the credit agreement, becomes otherwise less likely.

Problem Loan

Problem loans are specific to a borrower’s loan(s) or its risk rating with the financial institution. A problem loan is not the same as a “problem borrower,” which may include poor communication with their relationship team or reputational risk for the lender, among other things.

Some of the causes of a problem loan include (but are not limited to) delinquency (a missed payment), an expired or deteriorating risk rating, a covenant breach (either technical or financial), or by virtue of a loan reaching its maturity without being renewed. All of these characteristics make full repayment, or full recovery, much less likely. They also often impact a lender’s profitability, as the firm may be required to hold more capital against the impaired asset(s). 

Federal regulators in the United States use two categories to “risk grade” problem loans. These are:

Lending is a very low-margin business, meaning that firms must extend high volumes of credit in order to make meaningful revenue. After accounting for the cost of funds, operating expenses , and provisions for credit loss, net margins are even tighter still. Maintaining a low proportion of problem loans is paramount for a lender to be able to operate profitably, which is why banks work through considerable qualitative and quantitative due diligence for prospective borrowers.

Once credit is extended, however, the due diligence process is not over; ongoing monitoring – at least annually, but sometimes quarterly or even monthly – is an important part of maintaining a healthy credit portfolio.

Monitoring tools include, but are not limited to:

Experienced loan officers and credit analysts can often identify potential problem loans more quickly by observing patterns of behavior by management (like a high dividend payout ratio ) or weak internal controls (like slow collections or inadequate oversight of account access).

Clients exhibiting problem loan characteristics are not usually forced into liquidation right away. There are widely believed to be five reasonable options when approaching a potential problem loan. These are: 

Each alternative presents advantages and disadvantages to one of the two parties (either the borrower or the lender). In general, seeking a workout solution is (arguably) the only “win-win” alternative.

Sometimes a borrower starts to demonstrate problem loan characteristics, but reporting is in order, and the loan is performing. A lender may wish to monitor that borrower more closely before making a decision about the final outcome. In such instances, they will typically use what’s called a watch report . 

The watch process requires more robust interim reporting by the client, which helps the relationship team highlight the most important borrower characteristics and credit-specific information that senior risk managers need in order to stay up to speed on the client’s progress towards more stable operations.

If you are interested in learning more about Problem Loans, we recommend CFI’s Problem Loans Course . This course examines the unique challenges these loans present for a financial institution and how lenders can be more proactive in identifying potential problem loans.

Thank you for reading CFI’s guide to Problem Loans. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

business loan problem solving


How to Solve Problems

business loan problem solving

To bring the best ideas forward, teams must build psychological safety.

Teams today aren’t just asked to execute tasks: They’re called upon to solve problems. You’d think that many brains working together would mean better solutions, but the reality is that too often problem-solving teams fall victim to inefficiency, conflict, and cautious conclusions. The two charts below will help your team think about how to collaborate better and come up with the best solutions for the thorniest challenges.

First, think of the last time you had to solve a problem. Maybe it was a big one: A major trade route is blocked and your product is time sensitive and must make it to market on time. Maybe it was a small one: A traffic jam on your way to work means you’re going to be late for your first meeting of the day. Whatever the size of the impact, in solving your problem you moved through five stages, according to “ Why Groups Struggle to Solve Problems Together ,” by Al Pittampalli.

business loan problem solving

Pittampalli finds that most of us, when working individually, move through these stages intuitively. It’s different when you’re working in a team, however. You need to stop and identify these different stages to make sure the group is aligned. For example, while one colleague might join a problem-solving discussion ready to evaluate assumptions (Stage 3), another might still be defining the problem (Stage 1). By defining each stage of your problem-solving explicitly, you increase the odds of your team coming to better solutions more smoothly.

This problem-solving technique gains extra power when applied to Alison Reynold’s and David Lewis’ research on problem-solving teams. In their article, “ The Two Traits of the Best Problem-Solving Teams ,” they find that highly effective teams typically have a pair of common features: They are cognitively diverse and they are psychologically safe. They also exhibit an array of characteristics associated with learning and confidence; these teammates tend to be curious, experimental, and nurturing, for example.

business loan problem solving

As you and your colleagues consider these ideas, think about the last problem you had to solve as a team. First, map out what you remember from each step of your problem-solving. Were all of you on the same page at each stage? What aspects of the problem did you consider — or might you have missed — as a result? What can you do differently the next time you have a problem to solve? Second, ask where your team sees themselves on the chart. What kinds of behaviors could your team adopt to help you move into that top-right quadrant?

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10 Step Process for Effective Business Problem Solving

Posted august 3, 2021 by harriet genever.

Navigate uncertainty by following this 10-step process to develop your problem-solving skills and approach any issue with confidence. 

When you start a small business or launch a startup, the one thing you can count on is the unexpected. No matter how thoroughly you plan, forecast , and test, problems are bound to arise. This is why as an entrepreneur, you need to know how to solve business problems effectively.

What is problem solving in business?

Problem solving in business relates to establishing processes that mitigate or remove obstacles currently preventing you from reaching strategic goals . These are typically complex issues that create a gap between actual results and your desired outcome. They may be present in a single team, operational process, or throughout your entire organization, typically without an immediate or obvious solution. 

To approach problem solving successfully, you need to establish consistent processes that help you evaluate, explore solutions, prioritize execution, and measure success. In many ways, it should be similar to how you review business performance through a monthly plan review . You work through the same documentation, look for gaps, dig deeper to identify the root cause, and hash out options. Without this process, you simply cannot expect to solve problems efficiently or effectively. 

Why problem solving is important for your business

While some would say problem-solving comes naturally, it’s actually a skill you can grow and refine over time. Problem solving skills will help you and your team tackle critical issues and conflicts as they arise. It starts from the top. You as the business owner or CEO needing to display the type of level-headed problem solving that you expect to see from your employees.

Doing so will help you and your staff quickly deal with issues, establish and refine a problem solving process, turn challenges into opportunities, and generally keep a level head. Now, the best business leaders didn’t just find a magic solution to solve their problems, they built processes and leveraged tools to find success. And you can do the same.

By following this 10-step process, you can develop your problem-solving skills and approach any issue that arises with confidence. 

1. Define the problem

When a problem arises, it can be very easy to jump right into creating a solution. However, if you don’t thoroughly examine what led to the problem in the first place, you may create a strategy that doesn’t actually solve it. You may just be treating the symptoms.

For instance, if you realize that your sales from new customers are dropping, your first inclination might be to rush into putting together a marketing plan to increase exposure. But what if decreasing sales are just a symptom of the real problem? 

When you define the problem, you want to be sure you’re not missing the forest for the trees. If you have a large issue on your hands, you’ll want to look at it from several different angles:


Is a competitor’s promotion or pricing affecting your sales? Are there new entrants in your market? How are they marketing their product or business?

Business model 

Is your business model sustainable? Is it realistic for how fast you want to grow? Should you explore different pricing or cost strategies?

Market factors

How are world events and the nation’s economy affecting your customers and your sales?

Are there any issues affecting your team? Do they have the tools and resources they need to succeed? 

Goal alignment 

Is everyone on your team working toward the same goal ? Have you communicated your short-term and long-term business goals clearly and often?

There are a lot of ways to approach the issue when you’re facing a serious business problem. The key is to make sure you’re getting a full snapshot of what’s going on so you don’t waste money and resources on band-aid solutions. 

Going back to our example, by looking at every facet of your business, you may discover that you’re spending more on advertising than your competitors already. And instead, there’s a communication gap within your team that’s leading to the mishandling of new customers and therefore lost sales. 

If you jumped into fixing the exposure of your brand, you would have been dumping more money into an area you’re already winning. Potentially leading to greater losses as more and more new customers are dropped due to poor internal communication.

This is why it’s so vital that you explore your blind spots and track the problem to its source.

2. Conduct a SWOT analysis

All good businesses solve some sort of problem for customers. What if your particular business problem is actually an opportunity, or even a strength if considered from a different angle? This is when you’d want to conduct a SWOT analysis to determine if that is in fact the case.

SWOT is a great tool for strategic planning and bringing multiple viewpoints to the table when you’re looking at investing resources to solve a problem. This may even be incorporated in your attempts to identify the source of your problem, as it can quickly outline specific strengths and weaknesses of your business. And then by identifying any potential opportunities or threats, you can utilize your findings to kickstart a solution. 

3. Identify multiple solutions with design thinking

As you approach solving your problem, you may want to consider using the design thinking approach . It’s often used by organizations looking to solve big, community-based problems. One of its strengths is that it requires involving a wide range of people in the problem-solving process. Which leads to multiple perspectives and solutions arising.

This approach—applying your company’s skills and expertise to a problem in the market—is the basis for design thinking.

It’s not about finding the most complex problems to solve, but about finding common needs within the organization and in the real world and coming up with solutions that fit those needs. When you’re solving business problems, this applies in the sense that you’re looking for solutions that address underlying issues—you’re looking at the big picture.

4. Conduct market research and customer outreach

Market research and customer outreach aren’t the sorts of things small business owners and startups can do once and then cross off the list. When you’re facing a roadblock, think back to the last time you did some solid market research or took a deep dive into understanding the competitive landscape .

Market research and the insights you get from customer outreach aren’t a silver bullet. Many companies struggle with what they should do with conflicting data points. But it’s worth struggling through and gathering information that can help you better understand your target market . Plus, your customers can be one of the best sources of criticism. It’s actually a gift if you can avoid taking the negatives personally .

The worst thing you can do when you’re facing challenges is isolating yourself from your customers and ignore your competition. So survey your customers. Put together a competitive matrix . 

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5. Seek input from your team and your mentors

Don’t do your SWOT analysis or design thinking work by yourself. The freedom to express concerns, opinions, and ideas will allow people in an organization to speak up. Their feedback is going to help you move faster and more efficiently. If you have a team in place, bring them into the discussion. You hired them to be experts in their area; use their expertise to navigate and dig deeper into underlying causes of problems and potential solutions.

If you’re running your business solo, at least bring in a trusted mentor. SCORE offers a free business mentorship program if you don’t already have one. It can also be helpful to connect with a strategic business advisor , especially if business financials aren’t your strongest suit.

Quoting Stephen Covey, who said that “strength lies in differences, not in similarities,” speaking to the importance of diversity when it comes to problem-solving in business. The more diverse a team is , the more often innovative solutions to the problems faced by the organization appear.

In fact, it has been found that groups that show greater diversity were better at solving problems than groups made up specifically of highly skilled problem solvers. So whoever you bring in to help you problem-solve, resist the urge to surround yourself with people who already agree with you about everything.

6. Apply lean planning for nimble execution

So you do your SWOT analysis and your design thinking exercise. You come up with a set of strong, data-driven ideas. But implementing them requires you to adjust your budget, or your strategic plan, or even your understanding of your target market.

Are you willing to change course? Can you quickly make adjustments? Well in order to grow, you can’t be afraid to be nimble . 

By adopting the lean business planning method —the process of revising your business strategy regularly—you’ll be able to shift your strategies more fluidly. You don’t want to change course every week, and you don’t want to fall victim to shiny object thinking. But you can strike a balance that allows you to reduce your business’s risk while keeping your team heading in the right direction.

Along the way, you’ll make strategic decisions that don’t pan out the way you hoped. The best thing you can do is test your ideas and iterate often so you’re not wasting money and resources on things that don’t work. That’s Lean Planning .

7. Model different financial scenarios

When you’re trying to solve a serious business problem, one of the best things you can do is build a few different financial forecasts so you can model different scenarios. You might find that the idea that seemed the strongest will take longer than you thought to reverse a negative financial trend. At the very least you’ll have better insight into the financial impact of moving in a different direction.

The real benefit here is looking at different tactical approaches to the same problem. Maybe instead of increasing sales right now, you’re better off in the long run if you adopt a strategy to reduce churn and retain your best customers. You won’t know unless you model a few different scenarios. You can do this by using spreadsheets, and a tool like LivePlan can make it easier and quicker.

8. Watch your cash flow

While you’re working to solve a challenging business problem, pay particular attention to your cash flow and your cash flow forecast . Understanding when your company is at risk of running out of cash in the bank can help you be proactive. It’s a lot easier to get a line of credit while your financials still look good and healthy, than when you’re one pay period away from ruin.

If you’re dealing with a serious issue, it’s easy to start to get tunnel vision. You’ll benefit from maintaining a little breathing room for your business as you figure out what to do next.

9. Use a decision-making framework

Once you’ve gathered all the information you need, generated a number of ideas, and done some financial modeling, you might still feel uncertain. It’s natural—you’re not a fortune-teller. You’re trying to make the best decision you can with the information you have.

This article offers a really useful approach to making decisions. It starts with putting your options into a matrix like this one:

LivePlan Blog Images

Use this sort of framework to put everything you’ve learned out on the table. If you’re working with a bigger team, this sort of exercise can also bring the rest of your team to the table so they feel some ownership over the outcome.

10. Identify key metrics to track

How will you know your problem is solved? And not just the symptom—how will you know when you’ve addressed the underlying issues? Before you dive into enacting the solution, make sure you know what success looks like.

Decide on a few key performance indicators . Take a baseline measurement, and set a goal and a timeframe. You’re essentially translating your solution into a plan, complete with milestones and goals. Without these, you’ve simply made a blind decision with no way to track success. You need those goals and milestones to make your plan real .

Problem solving skills to improve

As you and your team work through this process, it’s worth keeping in mind specific problem solving skills you should continue to develop. Bolstering your ability, as well as your team, to solve problems effectively will only make this process more useful and efficient. Here are a few key skills to work on.

Emotional intelligence

It can be very easy to make quick, emotional responses in a time of crisis or when discussing something you’re passionate about. To avoid making assumptions and letting your emotions get the best of you, you need to focus on empathizing with others. This involves understanding your own emotional state, reactions and listening carefully to the responses of your team. The more you’re able to listen carefully, the better you’ll be at asking for and taking advice that actually leads to effective problem solving.

Jumping right into a solution can immediately kill the possibility of solving your problem. Just like when you start a business , you need to do the research into what the problem you’re solving actually is. Luckily, you can embed research into your problem solving by holding active reviews of financial performance and team processes. Simply asking “What? Where? When? How?” can lead to more in-depth explorations of potential issues.

The best thing you can do to grow your research abilities is to encourage and practice curiosity. Look at every problem as an opportunity. Something that may be trouble now, but is worth exploring and finding the right solution. You’ll pick up best practices, useful tools and fine-tune your own research process the more you’re willing to explore.


Creatively brainstorming with your team is somewhat of an art form. There needs to be a willingness to throw everything at the wall and act as if nothing is a bad idea at the start. This style of collaboration encourages participation without fear of rejection. It also helps outline potential solutions outside of your current scope, that you can refine and turn into realistic action.

Work on breaking down problems and try to give everyone in the room a voice. The more input you allow, the greater potential you have for finding the best solution.


One thing that can drag out acting upon a potential solution, is being indecisive. If you aren’t willing to state when the final cutoff for deliberation is, you simply won’t take steps quickly enough. This is when having a process for problem solving comes in handy, as it purposefully outlines when you should start taking action.

Work on choosing decision-makers, identify necessary results and be prepared to analyze and adjust if necessary. You don’t have to get it right every time, but taking action at the right time, even if it fails, is almost more vital than never taking a step.  

Stemming off failure, you need to learn to be resilient. Again, no one gets it perfect every single time. There are so many factors in play to consider and sometimes even the most well-thought-out solution doesn’t stick. Instead of being down on yourself or your team, look to separate yourself from the problem and continue to think of it as a puzzle worth solving. Every failure is a learning opportunity and it only helps you further refine and eliminate issues in your strategy.

Problem solving is a process

The key to effective problem-solving in business is the ability to adapt. You can waste a lot of resources on staying the wrong course for too long. So make a plan to reduce your risk now. Think about what you’d do if you were faced with a problem large enough to sink your business. Be as proactive as you can.

Editor’s note: This article was originally published in 2016. It was updated in 2021.

Harriet Genever

Harriet Genever

Posted in management.

Explore Lean Thinking and Practice / Problem-Solving


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Explore the process that’s foundational to assuring every individual becomes engaged by arming them with methods they can use to overcome obstacles and improve their work process.

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Overcoming obstacles to achieve or elevate a standard 

In a lean management system, everyone is engaged in ongoing problem-solving that is guided by two characteristics:

Lean thinkers & practitioners understand that the problem-solving process is impeded if you make the common mistake of mechanically reaching for a familiar or favorite problem-solving methodology or, worse, jump quickly to a solution. 

Leaders and teams avoid this trap by recognizing that most business problems fall into four categories, each requiring different thought processes, improvement methods, and management cadences.


The Four Types of Problems

Type 1: Troubleshooting:   reactive problem-solving that hinges upon rapidly returning abnormal conditions to known standards. It provides some immediate relief but does not address the root cause.

Type 2: Gap from Standard: structured problem-solving that focuses on defining the problem, setting goals, analyzing the root cause, and establishing countermeasures, checks, standards, and follow-up activities. The aim is to prevent the problem from recurring by eliminating its underlying causes.

Type 3: Target Condition:   continuous improvement ( kaizen ) that goes beyond existing standards of performance. It may utilize existing methods in new, creative ways to deliver superior value or performance toward a new target state of improvement.

Type 4: Open-ended:  innovative problem-solving based on creativity, synthesis, and recognition of opportunity. It establishes new norms that often entail unexpected products, processes, systems, or value for the customer well beyond current levels. 

By helping everyone in the organization to understand the importance of taking ownership of seeing and solving all types of problems, lean thinking & practice:

Ultimately, building a problem-solving culture creates a competitive advantage that is difficult for competitors to match.  

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How to Solve Cash Flow Problems in Business

Business cash flow is complex. If you have gotten your MBA, you know a business can be profitable but cash flow negative. A business can also be unprofitable and cash flow positive. Cash flow issues in small business are common and not as simple as boosting revenue or cutting costs. Let’s examine how a business identifies and improves cash flow problems.

Identifying cash flow problems

Cash flow issues in business come in many different flavors. Knowing how to solve cash flow problems depends on identifying the root cause. Small business owners often resort to the same tools for every problem: get more sales… get more debt… work harder! If you have not identified the exact cash problem in your business, your efforts may be making the problem worse.

A turnaround consultant will quickly and accurately identify your business cash flow issue. Below are some common small business cash flow issues they may identify:

How a business can improve cash flow

Small businesses commonly have a combination of cash flow issues. For example, a high cost of growth may have forced you to take on excessive debt; or, inaccurate accounting may be allowing fraud to occur. Since time and cash are running short, prioritizing these issues and executing the right solution is critical to an effective turnaround.

You would not expect a doctor to prescribe a medicine without performing a thorough examination and testing. Similarly, you should not expect to solve your cash flow problems without identifying the proper business cash flow issue.

Engaging a turnaround professional will empower you by identifying the issues quickly and building a financial plan to improve cash flow. Our CFOs are available for a free consultation to see if we can help your small business with a turnaround. Book an appointment here .

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What Is Problem Solving in Business?

Problem-solving in business is defined as implementing processes that reduce or remove obstacles that are preventing you or others from accomplishing operational and strategic business goals.

In business, a problem is a situation that creates a gap between the desired and actual outcomes. In addition, a true problem typically does not have an immediately obvious resolution.

Business problem-solving works best when it is approached through a consistent system in which individuals:

Why Problem Solving Is Important in Business

Understanding the importance of problem-solving skills in the workplace will help you develop as a leader. Problem-solving skills will help you resolve critical issues and conflicts that you come across. Problem-solving is a valued skill in the workplace because it allows you to:

How to Solve Business Problems Effectively

There are many different problem-solving skills, but most can be broken into general steps. Here is a four-step method for business problem solving:

1) Identify the Details of the Problem: Gather enough information to accurately define the problem. This can include data on procedures being used, employee actions, relevant workplace rules, and so on. Write down the specific outcome that is needed, but don’t assume what the solution should be.

2) Creatively Brainstorm Solutions: Alone or with a team, state every solution you can think of. You’ll often need to write them down. To get more solutions, brainstorm with the employees who have the greatest knowledge of the issue.

3) Evaluate Solutions and Make a Decision: Compare and contrast alternative solutions based on the feasibility of each one, including the resources needed to implement it and the return on investment of each one. Finally, make a firm decision on one solution that clearly addresses the root cause of the problem.

4) Take Action: Write up a detailed plan for implementing the solution, get the necessary approvals, and put it into action.

What Are Problem-Solving Skills?

Problem-solving skills are specific procedures that can be used to complete one or more of the four general steps of problem-solving (discussed above). Here are five important examples:

Using Emotional Intelligence: You’ll solve problems more calmly when you learn to recognize your own emotional patterns and to empathize with and guide the emotions of others. Avoid knee-jerk responses and making assumptions.

Researching Problems: An effective solution requires an accurate description of the problem. Define simple problems using quick research methods such as asking, “What? Where? When? and How much?.” Difficult problems require more in-depth research, such as data exploration, surveys, and interviews.

Creative Brainstorming: When brainstorming with a group, encourage idea creation by listening attentively to everyone, and recognizing everyone’s unique contributions.

Logical Reasoning: Develop standard logical steps for analyzing possible solutions to problems. Study and apply ideas about logical fallacies, deductive reasoning, and other areas of analytical thought.

Decisiveness: Use an agreed-upon system for choosing a solution, which can include assigning pros and cons to solutions, identifying mandatory results, getting feedback about solutions, choosing the decision-maker(s), and finishing or repeating the process.

How to Improve Problem-Solving Skills

Learning how to solve business problems takes time and effort. Though some people appear to have been born with superior problem-solving skills, great problem solvers usually have practiced and refined their abilities. You can develop high-level skills for solving problems too, through the following methods:

Ask and Listen: Don’t expect to solve every problem alone. Ask for advice, and listen to it carefully.

Practice Curiosity: Any time you’re involved in solving a problem, practice researching and defining the problem just a little longer than you would naturally.

Break Down Problems: Whenever possible, break large problems into their smallest units. Then, search for solutions to one unit at a time.

Don’t Label Yourself Negatively: Don’t allow a problem to mean something negative about you personally. Separate yourself from it. Look at it objectively and be part of the solution.

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In the world of business, one piece of advice you can probably abide by is to expect the unexpected.

7 Steps to Effective Business Problem Solving

Whatever the size of your business, you need to have a contingency plan for when problems arise since they are a part of every organization.

Regardless of how well you forecast, plan and test, challenges will always emerge in business. Having the right problem-solving plan can go a long way in ensuring you continue to function even amid unexpected and difficult circumstances.

What is problem-solving in business?

Problem-solving refers to the process to remove or mitigate obstacles that prevent a business from reaching its strategic goals. These can be issues that widen the gap between results and desired outcomes that do not have an obvious or immediate solution. They can be present in operational processes, teams or throughout an organization.

For instance, if the main problem a business is facing is productivity from remote employees, ensuring you equip them with the right work from home essentials by Omnicore can positively impact their productivity.

To be able to approach problem solving effectively, an organization should establish processes that can help in evaluating them, exploring the solutions, prioritizing execution and measuring success.

Why is it so important?

Acquiring problem-solving skills makes it easier for a team to tackle critical business issues or conflicts as they arise. This is a process that needs to be initiated by the management. A CEO or business owner should possess level-headed problem-solving skills to be mirrored by the employees.

With effective problem-solving techniques, the company and staff are better placed to deal with issues more effectively and even establish and refine how they deal with challenges in the future. A business can turn obstacles into opportunities with the right skills while keeping a level head.

In many ways, a problem-solving strategy should mirror how a business reviews performance through regular plan reviews. This calls for working through documentation, finding gaps, digging to find root causes and discussing possible options. Without such a process, problem solving cannot be effective or efficient.

Here are 7 steps you can take to create an effective problem-solving strategy.

1. Define the problem clearly

Whenever a problem crops up, it requires evaluating instead of jumping right into creating the solution. Failing to define and evaluate the root cause of the problem leads to the development of a strategy that will not work, as this is equal to just treating the symptoms.

For instance, when the sales numbers from a new customer start dropping, most businesses will rush into creating a marketing master plan to increase brand exposure as a way of driving up sales. While this may work in the short term, it does not solve the root cause of the drop in sales.

Defining the problem ensures you don’t miss the root cause of the symptoms. To do this, you need to look at it from different angles.

2. Think about multiple possible solutions

The success of any problem-solving process is dependent on how well a business can design a solution. The design thinking approach is one of the most used strategies for problem-solving since it helps to see the issue from different perspectives, leading to creating different possible solutions.

For this to be possible, the business needs to involve a wide array of people in the problem-solving process.

3. Conduct a S.W.O.T analysis

A S.W.O.T analysis is an excellent way or any business to have a look at its strengths and weaknesses. For instance, the launch of a groundbreaking product may be a strength, but the low margins can be the weakness.

In a S.W.O.T analysis, a business will need to document all its external opportunities as well as strengths. This analysis is conducted to make it easier for an organization to become more self-aware. It is a strategic planning tool that helps you identify problems before they affect the business. This makes it easier for the organization to develop solutions before the problem actually arises.

4. Gather input from mentors and the team

When conducting analysis, it’s ideal to seek input from your team to get valued ideas, concerns and opinions on the issues the business is facing. The feedback you get from your mentors, and the team can make your moves more efficient and faster in your problem-solving agenda.

Bringing in your team ensures you use their experiences and expertise in your business to dig deeper and navigate all underlying issues that may have caused the problems you are experiencing. You can also use their ideas and input to craft possible solutions.

If you are a solo entrepreneur, you can benefit from gathering input from your mentors. It’s also advisable to connect with trusted business advisors to get a different view of your issues.

Having greater diversity amongst the people you bring into the problem-solving process can improve your chances of coming up with effective long-term solutions.

5. Prioritize potential solutions

When you allow different people to help you come up with different solutions for your problem, you increase the chances of having multiple possible solutions to a common business problem. With all the options you have, you can evaluate each solution's pros and cons and prioritize the best options in the list.

Always remember that no solution is foolproof. Taking time to go through possible solutions while evaluating their pros and cons increases your chances of implementing the best option of them all.

6. Make a decision

To be able to solve a business problem effectively, you need to decide on the solution to implement. The decision-making process involves settling on the right course of action and should be done as soon as possible to avoid further losses. Taking too long to make a decision only gives the problem more time to impact your business negatively.

Once you have possible, reliable solutions, you need to ensure you implement the solution immediately by choosing a solution and sticking to it.  

7. Track progress

The only way to know whether you have successfully solved a problem is by keeping track of the implemented solution. This can be achieved by defining what successful problem-solving looks like and determining how the solution should impact your business.

Some of the questions you can ask when tracking progress include:

The best way to track your progress is by identifying key metrics to track. For instance, you can choose to track your profit margins after implementing a solution. You can tell whether a solution is working by constantly setting and hitting milestones. It’s also important to keep an eye on other business metrics to ensure the solution does not bring rise to other problems. Keeping an eye on the progress will ensure you remain a step ahead of future challenges.

Don’t be afraid of going back to the drawing board to perfect your solution if you identify loopholes that require improvement. Problem solving is a continuous process.

The bottom line

When you are good at problem-solving, you become more valuable in your business, thus setting yourself up for more success. The simple steps highlighted above can make you a more efficient and effective problem solver for your business. Taking time to practice the steps and develop the skills makes the process more natural to you, making future problem solving a breeze.

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Lidia Hovhan

Lidia Hovhan

SEO Analyst

Lidia is part of the Content and Marketing team at OmnicoreAgency . She contributes articles about how to integrate digital marketing strategy with traditional marketing to help business owners to meet their online goals. You can find professional insights in her writings. 

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Problem Loan

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Problem Loan Definition

A problem loan is a scenario where borrowers fail to repay monthly loan installments. The bank labels these loans as nonperforming assets (NPA). It can occur with either a commercial loan or a consumer loan.

business loan problem solving

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The loan is considered a default when borrowers miss consecutive repayments beyond the delinquency periods. A delayed repayment or loan default considerably reduces borrowers’ credit scores. It becomes a permeant mark on a borrower’s credit history. Poor credit history makes it hard for the borrower to secure future loans.

Key Takeaways

Problem Loan Explained

The problem loans definition suggests serious hurdles for the banking system. They also have a massive impact on cash flow . Every bank has dealt with problem loans in its lending history. A bank offers many types of loans; commercial loans and consumer loans are the most common. Commercial loans are offered to businesses and companies, and consumer loans are offered to individuals to buy household facilities, appliances, and products.

How a Loan Works?

There is a specific delinquency period for loans; beyond this period, the debt is referred to as a problem loan. But the delinquency period varies; commercial loans have a 90-day deadline, whereas consumer loans give lenders 180 days to clear pending premiums.

Every bank has a problem loan ratio. Banks try to keep the ratio low. Nonetheless, it is an ever-present issue with every bank; a small percentage of loans exhibit various issues. When a borrower fails to repay, it could be due to any legitimate reasons—financial difficulties, business losses, natural disasters, pandemics, or sudden personal expenses. However, a poor repayment history drastically affects a borrower’s creditworthiness—low credit scores.

There is a prevalent misconception that borrowers missing installment dates are immediately considered defaults. In reality, when a borrower misses consecutive monthly payments, the bank contacts them and asks them to pay the installments in parts. The bank restructures the loan—this assistance can last till the borrower becomes financially stable.

However, delayed monthly payments do affect borrowers’ credit scores. When a borrower applies for a new loan, past payment delays cause difficulties— lenders hesitate before sanctioning. In addition, it takes considerable time to improve credit scores—by repaying regularly.

Problem loan reports show that complete loan defaults are rare. In such scenarios, though, the bank suffers hefty losses depending on the type of loan. For example, the bank can seize property or sell an underlying asset if the loan is sanctioned using collateral. But unsecured loans (without collateral) are a big risk for the lender. As a result, the interest rates on unsecured loans are relatively high.

Debt Burden

This discussion is incomplete without mentioning students’ problem loans; In America, 44 million students owe $1.6 trillion . Yet, not all would be able to repay in time owing to the post-Covid-19 recession and rising college fees.

Let us look at some problem loan examples to understand the concept thoroughly.

Madelyn runs a small company that manufactures plastic bottles. When she wanted to expand her business, she took a commercial loan from a traditional bank, agreeing to pay a certain interest . The loan amount was $90,000, to be repaid within four years—48 monthly payments.

She paid all her monthly payments within the stipulated time for the first two years. Unfortunately, Madelyn suffered heavy business losses—she could no longer cover her monthly payments. As a result, she missed payments for three consecutive months (90 days). As a result, the bank labeled Madelyn’s loan account a nonperforming asset.

Now let us look at another problem loan example.

Madelyn’s husband, Dahmer, worked for an MNC. He bought a new laptop by securing a consumer loan. Unfortunately, Dahmer also encountered financial difficulties; he missed six monthly installments consecutively (180 days). The loan delinquency limit for a consumer loan is six months, so the bank added Dahmer’s loan to the list of problem loans.

In all such scenarios, the bank contacts the borrowers immediately and asks them to repay the loan. If they cannot, the bank offers restructuring options and asks the borrower to pay in part. If the loan defaults, the bank takes legal action and incurs losses.

How To Identify And Manage Problem Loans?

The simple ways to identify the problems are as follows.

Frequently Asked Questions (FAQs)

The main causes are as follows. – Inefficient bank policies. – Unsecured loans. – Errors in collateral reviews. – Improper background checks on loan applicant profiles and credit history. – Financial difficulties endured by borrowers. – Multiple bad debts sanctioned for the same borrower. – Borrowers falling into debt traps. – Irresponsible behavior towards loan payments.

To solve problem loans, banks first identify bad debts. Then, they declare the loan account a nonperforming asset or NPA. Consequently, they reach out to the borrower, asking them to pay the loan amount in parts. If a loan defaults, the bank takes legal action against the borrower to mitigate losses. Banks try to keep the problem loan ratio as small as possible.

After identifying the problem loan, the bank declares the loan account as an NPA. This severely affects the borrower’s credit score. If a borrower completely defaults on a secured loan, the lender tries to recover the loss by seizing property or collateral.

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More From Forbes

The '8 great' challenges every business faces (and how to master them all).

This week I interviewed a personal mentor of mine – his name is Neal Jenson, Managing Director of consulting firm BBS, in Salt Lake City. He has one of the most diverse business backgrounds I’ve known, ranging from stints with Fortune 500 firms including Citigroup and Bank of America to start up firms looking to bootstrap or seeking their start through Angel funding or SBA loans.

He’s also one of the only people I know closely who actually has two masters degrees – an MBA from Brigham Young University (my own alma mater) and a masters of science in Information Service from the  University of Utah. In addition to acting as a mentor, Neal is also a friend—his son is the husband of our daughter, which makes us co-grandparents to two extremely adorable little boys, Riley and Peyton (our next generation of business leadership is in very good hands).

From his client base of all sizes, I asked Neal to narrow down for me the greatest challenges he sees for the businesses he counsels, as well as his thoughts on the ways to navigate each. Here are his responses.

Neal Jensen, Founder of Better Business Services, is an expert in the challenges that face ... [+] businesses of every size (Image courtesy of BBS)

First off, Neal notes that navigating a business is extra tricky these days.  The speed of economic and technological changes means that the right path yesterday may not work today and could be a disaster by tomorrow. Solving these dynamic problems is what separates those who excel from the companies who are closing the doors.

While Neal’s experience base ranges from Fortune 500 CEOs to small business entrepreneurs, he notes in our first interview a set of challenges that are common to both:

1. Integrity. Business has never faced the type of moral challenges that it faces in today’s global economy.  Everyone is struggling to be more successful, to make the next quarterly earnings estimate, to keep their job, to earn a big bonus, or to compete effectively.  The temptation to cut corners, omit information, and do whatever it takes to get ahead occur every day. Many business employees and executives succumb.  Sadly, the theme becomes highly infectious and soon people actually start to feel like lying a little, or stealing a little, or deceiving others, is just “a part of business”.  These practices erode the trust that needs to exist between employers and employees, between business partners, between executives and shareholders.  Without trust, the business will not be able to compete effectively and it will eventually fail.

2 .  Cash, Borrowing, and Resource Management.  Cash is King!  We’ve all heard this maxim and it is more true today than ever before.  A healthy profit may look nice on your financial statements, but if capital expenditures or receivable collections are draining your cash, you won’t be able to stay in business for long.  Too often executives and small business owners fail to focus enough on cash flow generation.  In order to head off this problem, businesses must either be adequately capitalized and must shore up cash reserves to meet all obligations as they are needed and to handle downturns and emergencies that may arise. Cash management becomes even more important during recessionary times when cash is flowing more slowly into the business and creditors are less lenient in extending time to pay.  For small businesses, handling business accounting and taxes may be within the capabilities of the business owners, but professional help is usually a good idea. The complexity of a business’ books go up with each client and employee, so getting assistance with managing cash and the bookkeeping can allow you to excel when others are calling it quits. Cash flow challenges are exacerbated by the lending climate, particularly for small businesses. Bankers are unlikely to be more liberal in their lending policies any time soon.

3. Increased selection and competition. It’s never been easier to start a business. Gone are the days when it took weeks, months, and a myriad of forms to get your business started. Now if you can buy a domain name and register your business online, you're in business. However, staying in business is a much more complicated matter.  While business expertise was once an expensive and time consuming endeavor, you can now find experts online for many questions that you might encounter.  There is help to starting an online store, for example, for getting business cards and marketing materials – all at a very reasonable cost.  The ease of starting a business creates a much broader level of competition.  You might find different business competing for each product you sell and new business that focus on a single item and spend all their time and focus on being the very best at just one thing.  This increase in overall selection and more focused completion will make it more difficult for businesses of all sizes to retain customers who can change their suppliers with the click of a mouse.  It's a battle of perception, focus, and marketing. Business owners who master these elements and provide a great customer experience will win the sale.

4. Marketing and Customer Loyalty. Along the same lines as increased selection and competition is the challenge to market to potential customers effectively and retain your existing customers. Smartphones, social media, texting, email, twitter and other communication channels are making it easy for businesses and individuals to get their messages out.  Figuring out the right marketing channels is key for businesses to be successful in the future.  Where are your customers and how do you best reach them and what is the right messaging?  Once you get a new customer, how do you keep these customers when they are constantly barraged by competitors of all types, sizes, and locations, trying to convince them that they can do it better or provide it cheaper?  Identifying what your customers want and doing a better job of giving it to them will make all the difference in your company’s future.  The conservative spending climate is also causing a shrinking customer base. Consumers are still quite conservative with their pocketbooks, and as a result, organic growth from current and new customers is not growing as quickly as businesses would like. Business owners and executives are spending more time figuring out how to go above and beyond to keep existing customers, while at the same time figuring out how to cost-effectively reach new customers -- without competing solely on price, which always ends up to be a race to the bottom.

5. Uncertainty. All of us, and especially business leaders find great discomfort in uncertainty. Because of global debt and economic struggles, uncertainty is more pronounced today than in the past. The sad news is that uncertainty leads to a short-term focus. Due to uncertainty, companies tend to shy away from long-term planning in favor of shorter-term goals. While this might feel right, a failure to strategically plan five to ten years into the future can end up destroying value. Businesses must learn to balance the need for a more reactive, short-term focus with the need for informed, long-term strategies. Uncertainty tends to put many into a general malaise – unable to get anything done. The ever-running news cycle leaves everyone feeling a bit on edge. This causes business owners and executives to hunker down and customers to stop spending. You need to shut out the world ending news and get back to work."

6. Regulation . A changing regulatory environment is always of concern in certain industries, but uncertain energy, environmental and financial policy is wreaking havoc for nearly all companies today. Whether a demand from customers or shareholders to become more “green,” or the threat of increased costs due to new carbon taxes, environmental considerations are among the biggest challenges businesses face today. And we don’t need to give too much press to the current issue of financial reform and regulation, although we do have some opinions about how to prepare for that if you’re a bank or a brokerage house. The problems to be solved are to understand the meaning of regulation in your industry, its implications for your business, and to develop the skills necessary to deal with it.  Two key areas of regulatory challenges are taxes and health care.  Lawmakers are still haggling over what's called the fiscal cliff, the combination of billions of dollars in tax increases and budget cuts. Even if Congress reaches an agreement, businesses won't have the certainty they need to make intelligent decisions.  When Congress does reach an agreement, it most likely won't be comprehensive enough that it won’t need to be revisited again next year. Health care has been another challenge for businesses. The new Affordable Health Care Act (Obamacare) is so complex that state and local governments won’t know what to do  and businesses will have to devote significant time and resources to understanding the law — or for a small business, hiring some professional to help them do it. They'll have to get their arms around the law, look at their options, learn more about the exchanges and determine how to make it all work.   Many businesses don't yet know whether their states will be creating exchanges, or whether they'll have to go into the national system — and they don't know what that will mean for their costs.  For some businesses, that information will help them decide whether they will buy insurance, or whether they'll decide it's cheaper to not provide coverage and just pay the government a $2,000-per-employee fine. For those who have close to 50 workers, they may decide to not hire more workers in order to remain outside the law's jurisdiction.

7. Problem Solving and Risk Management. A major challenge for all companies is identifying, assessing, and mitigating risks, including human and financial capital, in addition to the macro economy.  The lack of a sophisticated problem-solving competency among today’s business leaders is limiting their ability to adequately deal with risks facing their businesses. This is why corporate managers tend to jump from one fire to another, depending on which one their executives are trying to put out, and in many cases the fast-changing business environment is what ignites these fires. So what is the problem to be solved? We believe, to do well into the future, companies must resolve that problem solving is the key to business, then develop a robust problem-solving capability at all levels.   As companies proceed to identify risks, they will then have the problem solving skills to know how to best mitigate them.

8. Finding the right staff. Without exception, every business executive I speak to says that one of their biggest challenges is staff – finding the right staff, retaining them, and ensuring they buy into the vision of the business. I'll freely admit that I have no magic answers here. In fact, if someone could develop a formula for recruiting and engaging the right team members, they would make millions.  A small business is almost like a family, and, like many families, they can work well, or they can be dysfunctional. In big companies, the human resource challenge is politics and fit in the workplace, but when it comes to small business, its personalities and skill.  When you work in a small environment, each team member's personality can have a huge impact on the harmony and productivity of the business. The key is to learn how to deal with different personalities, figure out what drives each individual team member and tailor your management accordingly.  Despite high unemployment, many companies struggle to find the right talent with the right skills for their business.   Many new manufacturing jobs require high-tech skills. They include positions at factories where computers are used to create products like airplane parts and machinery. And some require several years of training.  Because of changing technology, businesses are struggling to find qualified workers with IT skills, problem solving abilities, and deductive reasoning skills.

As I consider my own business and its challenges, I agree with Neal's conclusions that these are the critical 8. How about your company? Have we named the right issues? Would you like to include others?

For anyone who'd like to connect with Neal personally, you can reach him on LinkedIn , at, or can reach out to him directly at @Qazztek or [email protected] As always, I welcome your thoughts.

Author:  Cheryl Conner  |  Google+

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Cheryl Conner



7 Common Small Business Problems and Their Solutions

Trouble running your business? Here's how to overcome the 7 biggest challenges.

A small business is a dream for many people, offering independence, autonomy, and creativity. The fact is, some small businesses always thrive, no matter the climate and outlook. The key is setting up systems so your business can be successful, too.

The year 2020 and the following Great Resignation have reinforced a constant in small business life: the need to be nimble and adapt to business conditions in order to succeed. That’s why it’s important as ever to review the most common small business challenges and, most crucially, to strategize methods of overcoming them. An organized and prepared business owner who knows about potential challenges is far more likely to meet them productively than someone who isn’t aware of them.

Here are the common challenges we identified in our 2022 Small Business Trends. This annual survey is spearheaded by Guidant to support small businesses with data trends and insights.

1. Recruitment, Retention of Employees, and Labor Quality

Challenges in labor quality, including employee recruitment and retention were cited by 55% of small business owners, making it the largest challenge. For the first time ever, lack of capital was pushed from its top spot as the number one small business challenge.

When the 2021 Small Business Trends Survey was compiled, the unemployment rate was at the lowest level in a half-century. Strong employment can make it hard to recruit and retain – which explains why the share of small businesspeople citing recruiting and retention as a challenge rose 22% year over year. In 2022, this trend has continued with labor shortages everywhere, from your neighborhood coffee shop to larger factories in cities. The Great Resignation has put an exclamation point on this decade’s employment challenges. 

While there may be more people not working and thus in the labor pool, it is still highly important to take the time to recruit effectively and make sure you choose the right person. Remember, your employees highly influence your customer service. Hiring mistakes are costly; turnover costs even for lower-level employees can be roughly $3,500 It is also very important to retain employees once you’ve hired and trained them. Employees leaving can drain your productivity in two ways: you lose their productivity, and your own is sapped by the time needed to recruit a replacement.

Infographic displaying the top 6 changes small business owners are implementing to fight the great resignation.


If you’re a small business struggling with employment, make a goal for what you want. Take the time to think through what role a new employee should play, and what skills and capabilities they need to bring to the table. Develop a job description that will attract people with those skills and capabilities.

Yes, small businesses often require employees to wear many different hats. But you have to start with a clear vision, or your recruitment efforts may descend into chaos. Hire for the role you most need right now. If the new hire can grow, fine. Concentrate on essential coverage first.

Then, make sure the salary and benefits you offer are competitive within your industry. To attract top people, you need to be competitive. Word of mouth about your salary and benefits can spread within the industry. If your rates are competitive, your recruitment efforts will be enhanced. If they’re not, your recruitment effort may become more difficult and your job openings may sit open. 

Competitive salary and benefits are also a key retention strategy . In fact, 63% of small business owners increased compensation in 2022 to combat hiring difficulties. Make yours a good place to work by offering them. The cost of health insurance plans is a big factor for many seeking employment, so make sure your benefits are robust, if possible. 

Employees also like to feel valued and appreciated, and if they do they develop the loyalty that drives good retention rates. Institute employee appreciation strategies, such as employee of the month or gift card rewards, if appropriate. Take the time to develop promotional paths for top employees, so they will benefit from company growth.

2.  Changing Operations in Response to the Market Conditions

The second most common challenge in 2022 has been supply chain disruption. The National Federation of Independent Businesses now reports that a whopping 40% of businesses have been significantly impacted. 

There have also been significant price hikes as a result of increasing inflation. And though the Fed is combating inflation by increasing interest rates, many small business owners find the new interest rates just as grim a reality. 

Solution: Diversify and Optimize

Smart business planning is the key to staying afloat during fluctuating market conditions. 

Forbes recommends that tackle supply chain issues by increasing your inventory whenever possible, optimizing your supply chain as it is now, and being up front about difficulties with your customers. 

Solution: Changing Your Model

You can also change your business model, or how you provide products to customers while maintaining the fundamental customer experience. Restaurants and pet food and toy suppliers, for instance, are succeeding during the pandemic by switching their delivery methods. Rather than customers coming to them, they are delivering to customers.

Moving products and services online is another potentially robust strategy. Businesses from children’s entertainment to yoga studios are finding success with online offerings.

Second, focus on what customers need. Consumers will always continue to purchase what they must have, such as food, medicine, and healthcare needs. Businesses can capitalize on those needs. Some alcohol distilleries, for example, are retooling to make hand sanitizer, and clothing manufacturers are producing medical masks. Allow customer feedback to guide your decisions.

Top plans of small business owners for business growth in 2022.

3. Lack of Capital/Cash Flow

The third-biggest challenge faced by small businesses in 2022 Small Business Trends was a lack of capital/cash flow (31%).

Having limited resources as a small business owner is the rule, not the exception. Capital and cash flow are the lifeblood of a business, providing both operating cash and room to expand and innovate. A lack of them poses an immediate threat to the survival of a business.

Solution: Obtaining Funding

Many entrepreneurs think of loans and other funding methods when considering their access to capital and cash flow needs. But loans can be hard to get in every business climate. Loans guaranteed by the Small Business Administration (SBA) can be a bit easier to get, but the percentage of loans approved is still relatively low and is influenced by where you live, the industry you’re looking to enter, and whether you have previous business experience.

Fortunately, there are multiple funding solutions in today’s climate. It’s often possible to access existing resources. Rollovers as Business Startups, or ROBS, for example, allows you to access 401(k) and other retirement funds, which is why it is also known as 401(k) business funding. Home Equity Lines of Credit, or HELOCs, access existing equity in a home.

Solution: Managing Your Capital and Cash Flow

Are business challenges preventing you from meeting your capital and cash flow needs? Here, too, there are multiple solutions. First, remember that it’s always important to assess your own sector and industry. Even in an economic downturn, many sectors thrive. Healthcare, food, and delivery of essential products, for example, will likely be strong. If you’re in these sectors, strategize methods to capture and increase business. If you’re planning a business venture, focus on recession-proof sectors. If your assessment indicates that your business will be negatively affected, however, it’s time to get creative. Can your business be retooled and revamped to meet the challenges of uncertainty with the COVID-19 pandemic?  

Finally, manage your cash flow judiciously for business success. This can be a challenge for business owners, but you don’t know what the future business conditions will be so it’s best to have a cushion of cash reserves. Review and revise your product line to concentrate only on what’s most successful. Assess whether you can reduce staff, real estate overhead, and other expenses.

4. Administration

The fourth-largest small business problem (23.25%) is administration work. This includes bookkeeping, payroll, and so forth.

Failing to do these functions adequately can cause problems. Bookkeeping, or keeping track of costs, payments, purchases, and sales, is necessary but time-consuming and potentially complicated. Unfortunately, it’s a crucial function in keeping cash flowing. Without adequate bookkeeping, your business can dry up.

Payroll can be even more complicated. Business owners need to keep abreast of Federal, state, and local taxes to make sure they withhold taxes correctly. They also need to comply with other withholding requirements, such as those for Social Security, Medicare, workers’ compensation, unemployment insurance, and so on.

If a business offers 401(k) payroll deductions, the deductions must be in employee accounts within a specific time period, or the business can be penalized. You can also be the target of Internal Revenue Service (IRS) fines and penalties for failing to pay the right amount of taxes, underpayment, or late payment.

Issues with administrative tasks can also lead to (or stem from) problems in other areas, such as recruitment and time management.

Solution: Outsourcing

Fortunately, solutions are available. The simplest may be to outsource one or both functions, depending on your needs. Hiring personnel to do bookkeeping or payroll is one option.

A less time-consuming and less expensive option is to use widely available solutions. For bookkeeping, many services exist that will scale their services to your needs relatively inexpensively. They provide accounting, expense management, monthly reconciliation, financial statements, and more.

Many payroll services will do the same, providing payroll processing, withholding services, payment methods to employees (such as direct deposit and cutting checks), and more.

Payroll services offer robust packages that can solve other problems for you. Many offer, for example, human resources (HR)-related functions, such as time-keeping assistance, job description templates, and access to online recruiting services. A payroll services provider can offer assistance in corporate compliance as well, such as assistance with employee handbooks and online sexual harassment training.

Check out Guidant’s Small Business Services to learn more.

5. Time Management

Business owners are always pressed for time. It’s the fifth-largest challenge at 21%, and it’s easy to see why.

Running a business demands multiple sets of expertise and activities throughout every area of the business. In a small company, you may be the CEO in the morning, setting the strategy and the long-term course for the ship. In mid-day, you’re a product developer, reviewing sales figures for the most recent product offering. In the afternoon, you’re contacting customers, and later, managing payroll and benefits.

You need to constantly juxtapose long-term goals like realizing your strategy with short-term goals, like meeting payroll. Blend the interruptive nature of business life into that mix – phone calls, e-mails, and conferences, to name just three – and it’s no surprise that time is one of the most important business commodities.

Solution: Active Time Management Solutions

Active time management solutions are important. First, know your primary goals for the business. Your goals should be SMART:

Second, prioritize tasks by linking them to your goals. A to-do list is a useful method of prioritization. Jot down everything you need to do. (It’s very important to have these in written form, by the way. Don’t just keep lists in your head.) Then assign them priority by their importance to company goals and by the time in which you need to do them.

Break long-term goals into specific tasks, and assign them a time frame. If you need to hire a new employee by the beginning of next quarter, for example, the individual steps could be writing a job description, posting the job, reviewing resumes, performing background checks, interviewing several people, and making a choice. Set a realistic time for the completion of each individual task.

Work through your to-do list by priority. Carry over tasks left undone and don’t stress when there are tasks left undone. Uncompleted tasks will exist; it’s part of the nature of business.

Third, after several weeks, analyze your time management, using your to-do lists.

Is there a set of tasks consistently not getting done? If so, consider relevant solutions. You may need to delegate some tasks to existing employees or hire new personnel. You may want to hire contractors in certain areas, such as taxes or creative work like marketing or advertising. If the areas not getting done can be automated, such as payroll or onboarding new employees, consider automating them. This can even help with future business growth, and generate new business ideas and business insights. 

Solution: Book Time Just for You

Are the problems stemming from constant interruptions? Make it a practice to book some time clearly just only for you. It could be the first hours in the morning or late at night; whichever works best for your schedule. Enforce the lack of interruptions. Do not answer e-mails or texts. Do not answer the phone. Do not give an impromptu management-employee meeting.

Frankly, if you are consistently not getting to certain tasks, assess whether they are necessary. Have you wanted to check out new office locations or buy new equipment, for example, but never seem to marshal the time needed? Think about undertaking them during slower times of the year.

Finally, assess whether you are performing activities in the most efficient way possible . Online to-do lists, for example, can be revised far more quickly than those made by hand. E-mail blasts to all employees are more productive than individual informational chats. Streamline and systemize your activities whenever possible.

For more guidance on time management, read our Time Management Troubleshooting Guide

6. Marketing and Advertising

For your business to be successful, potential customers need to know about it. This is where marketing and advertising come in as the third most cited (19%) business challenge in 2022 Small Business Trends.

Solutions are abundant in this category. You just have to define what area of marketing and advertising you need to strategize.

Is your issue with how to reach customers, for example? The coronavirus has led to more people being at home and online. If work-from-home folks are your customer base, target them online! From there, you can get even more specific: perhaps your target market really thrives on social media. Maybe they hang out on forums or message boards like Reddit. If that’s the case, developing an online presence and marketing that way will really benefit you. Try direct mail with unique methods for people who might have more time at home – and more time to respond to direct mail. Is your issue keeping sales during periods of belt-tightening for your consumers? Text people with news of promotions and loyalty programs. Campaigns that reward customers can be initiated with minimal cash outlay. If your challenge is developing marketing and advertising, there’s no time like the present to outsource. Creative people work online; recruit independent contractors for strategies and content creation.  

7. Managing and Providing Benefits

Benefits are a crucial part of every business. But managing and providing benefits can also be time-consuming and complicated, leading 13% of small business owners to cite it as a leading challenge. This amount has grown significantly year over year. Businesspeople run several risks in not paying enough attention to managing and providing benefits. First, some benefits are required by law , and you can run afoul of the federal government and state mandates if they aren’t managed in accordance with the law. Second, deductibles in small business plans have increased dramatically in recent years. Business owners not paying attention could find themselves in serious trouble.

What benefits are required? Unemployment insurance is Federally required and must go through the states. Disability and workers’ compensation are required by most states. If you have more than 50 employees, the federal government requires that you provide health insurance. If you have more than 20, you must offer health insurance for 18 months after they leave your company through the Consolidated Omni-Budget Reconciliation Act (COBRA). Employers need to be compliant with the Federal Family and Medical Leave Act (FMLA) as well.

Time off to vote, for military service, and to perform jury duty is also required.

Second, benefits are key components in attracting and retaining workers. Your benefits need to be at least competitive within the industry. Common benefits include insurance (health, dental, vision, and life), paid time off (both vacation and holidays), sick leave, and retirement benefits. Benefits often used to attract employees, especially younger ones, include flexible schedules and other options for work-life balance and health-related benefits, such as gym memberships. There’s no quick and easy solution for managing and providing benefits. Small business owners who want to familiarize themselves with the basics of benefits can read here . Frankly, it’s likely best to have at least a bird’s eye view of the benefits environment, to be knowledgeable about requirements and how best to recruit and retain.

That said, you don’t have to be responsible for every benefit function. You can hire a benefits counselor or a lawyer to provide your overview and make sure you are compliant with all government agencies’ laws and regulations. They can also keep you up to date, as requirements change frequently. Staffing consultants can provide competitive industry information on benefits.

Other Small Business Problems

Guess what? Sixteen percent of small business respondents named “Other” as their most significant business challenge! Implicitly, that’s a testimony of how diverse and complex business challenges can be.

The solution, of course, depends on what kind of problem you’re having. But one all-purpose solution that many business owners find helpful is hiring a virtual assistant (VA). VAs are usually contractors. They can do administrative and clerical tasks, such as setting up meetings, creating presentations, and filing.

That said, they aren’t limited to administrative and clerical tasks. Some do bookkeeping; others are whizzes on social media. Many can research, too; if your issues are researching funding methods or potential clients, they can help. They can screen vendors and clients. Finding the time to hire an excellent all-around VA might be just the solution to make your “other” issues recede or vanish entirely. Of course, if you’re the sort of person who wants to fix things yourself, you can always try and polish your own business skills.

Get a Little Extra Help from the Pros

Guidant is dedicated to helping businesses in the startup and early stages. We can advise on funding methods, business structure, and other pressing business issues. We provide mentorship through every stage of your business’s life. Call us today to find out how we can help you at 888.472.4455.

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Top 10+ Resources and Guide for Getting Started with ROBS

Have you heard of 401(k) business financing — or Rollovers for Business Startups (ROBS)? Here’s everything you need to know about ROBS to get started.

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ROBS 401k Business Financing: 10 Types of Eligible Retirement Funds

ROBS 401k business financing has increased in popularity for business owners. Despite having “401k” in the name, you can use most retirement plans for ROBS!

Which retirement plans are eligible for a ROBS arrangement?

What Retirement Plans Work With ROBS?

Rollovers as Business Startups is a great way to fund your business debt-free. Learn what retirement accounts are eligible, and why.

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Using ROBS to Fund Your Small Business While Keeping Your Job

There’s a better way to access your retirement funds to start or buy a business without triggering penalties. There’s even an option to use your current retirement funds as business capital without having to give your two weeks’ notice.

Ready to use your retirement funds to start your business?

No more questions about ROBS? Great! Let’s get the process started today!

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Everything you need to know about rollovers for business start-ups (robs).

This eBooks includes:

The steps to fund your business debt-free in as little as three weeks.

How to structure your corporation according to IRS guidelines.

Tips to control your future and direct your retirement funds.

How to earn a salary, save for retirement and be your own boss.

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Finding the solution is never easy but, we are here to help you solve and deal with mathematical problems. Welcome to our general mathematics blog! Just like you, we are students in need too and together we can solve this! “Bye bye textbooks! Hello Online Learning”

Solving Problems on Business and Consumer Loans

First, let us define:.

Business Loans – Businesses require an adequate amount of capital to fund startup expenses or pay for expansions. As such, companies take out business loans to gain the financial assistance they need. A business loan is debt that the company is obligated to repay according to the loan’s terms and conditions. According to the U.S. Small Business Administration, before approaching a lender for a loan, it is imperative for the business owners to understand how loans work and what the lender will want to see from the owner. Business loan is borrowed capital that companies apply toward expenses that they are unable to pay for themselves. Some business owners use business loans to pay for salaries and wages until their new company gets off the ground, while other companies put borrowed funds toward office supplies, inventory or business projects. Lenders want to know how the business intends to use the borrowed monies, so business owners must make sure to have a clear outline for how the money will be spent. According to an October 2010 article by David Bangs in, it is important to impress the lenders by being professional, or they may decline the loan application.

Consumer Loans – An amount of money lent to an individual (usually on a nonsecured basis) for personal, family, or household purposes. Consumer loans are monitored by government regulatory agencies for their compliance with consumer protection regulations such as the Truth in Lending Act. Also called consumer credit or consumer lending.

EXAMPLE 1.  Mr. Garcia borrowed P1,000,000 for the expansion of his business. The effective rate of interest is 7%. The loan is to be repaid in full after one year. How much is to be paid after one year?

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An amount of P1,070,000 must be paid after one year.

EXAMPLE 2.  (Chattel mortgage). A person borrowed P1,200,000 for the purchase of a car. If his monthly payment is P31,000 on a 5-year mortgage, find the total amount of interest.

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The mortgage amount is P2,400,000.

EXAMPLE 3.  If a house is sold for P3,000,000 and the bank requires 20% down payment, find the amount of the mortgage.

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EXAMPLE 4 . Ms Rosal bought a car. After paying the downpayment, the amount of the loan is P400,000 with an interest rate of 9% compounded monthly. The term of the loan is 3 years. How much is the monthly payment?

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The regular payment is P12,719.89.

For more examples:

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2.  Ms. Sena got a P500,000 loan to be repaid quarterly in 5 years. The interest rate applied is 10% convertible quarterly. The quarterly payment is solved as P32,073.56. How much is the outstanding balance after 2 years?

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3. A business loan of P45,000 is given to Ms. Alfonso. The monthly payment for the loan amounts to P11,485.35 for 4 months. The interest rate used is 10% convertible monthly. How much is the outstanding balance after the first payment?

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4. A consumer loan of P300,000 is to be repaid quarterly for 5 years. If the interest rate is 10% converted quarterly, How much is the quarterly payment?

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5. A business loan of P650,000 is to be settled by paying P29,994.20 monthly in 2 years. If the interest rate is 10% converted monthly, how much is the outstanding balance after 6 payments?




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10 Top Financial Challenges for Small Businesses and How to Overcome Them

scott beaver

Keeping a small business going isn’t for the faint of heart. While 80% of companies with fewer than 500 employees make it through Year 1, says the U.S. Chamber of Commerce, just 70% are still operating at the end of the second year. By the time they hit the five-year mark, just half of small companies are still in business.

Fortunately, these sobering statistics don’t keep Americans from reaching for their entrepreneurial dreams: As of 2018, there were 30.2 million small businesses operating in the United States.

Of those small-business owners who shut their doors, nearly half point to a lack of funds. Put simply, not enough money was coming in for them to pay employees or cover other expenses. In this article, we’ll look at the Top 10 financial challenges that small businesses typically deal with and show how to overcome them—and beat the odds.

10 Top Financial Challenges for Small Businesses

Here are the top financial challenges that small businesses are grappling with and some tips to cope. The goal: Keep your company solvent, profitable and productive.

What are the biggest challenges for small businesses?

Limited or Inconsistent Cash Flow

Not using a budget, no preparation for unforeseen expenses, not raising enough capital, too much debt, neglecting necessary reporting, poor tax compliance, not paying bills on time, mixing business and personal finances, poor marketing tactics.

Most companies struggle with managing cash flow. From simply invoicing effectively so you bring in enough to cover the monthly bills to accumulating cash to invest in growth, liquidity is an ongoing issue.

Tips for Managing Receivables and Payables

Cash flow 101 involves balancing accounts payable and accounts receivable. By maximizing the cash-to-cash conversion cycle , companies ensure access to capital.

Beyond those basics, companies should develop cash flow forecasts based on historical performance and current conditions. Always factor in contingencies—industry changes, economic downturns, customer shifts—and use “what if?” scenarios to develop a realistic financial plan. In fact, scenario planning is on top of many companies’ to-do lists, to avoid the unprepared situation many found themselves in when the pandemic hit.

For companies that extend credit terms to customers, top ways to improve cash flow include establishing clear payment terms, invoicing effectively, offering discounts for early payment and making it easy for customers to pay you.

Combined, these strategies will maximize liquidity.

If you’re running your business by the seat of your pants, just hoping that there will be enough in the bank to pay the bills at the end of the month, it won’t take long to wind up with more debt and financial responsibilities than you can handle.

Our advice: Develop and stick to a budget. Doing so will not only help you plan for the future, it will give you a tool for analyzing expenditures and the ability to change direction quickly when needed.

Regularly update your budget to reflect current circumstances and use it to make good business decisions. A budget should be a living document, not something you write then toss in a virtual (or literal) drawer.

In fact, flexible budgeting is a hot trend among entrepreneurs.

Static vs. Flexible Budgeting

At minimum, every small business budget should include these five elements:

We also recommend building in some savings for unexpected events.

Unforeseen expenses can derail any small business’ best-laid plans. Having a dedicated account in which you build up a rainy day fund will give your business a cash reserve that can get you through tough times—or help you grow when the time is right.

Here’s how it works: When times are good, put what you can into the account and let it grow over time. You can also set up automatic transfers from your business checking account to its savings account so that you don’t need to do it manually; the money will be accessible if you need to pull some back.

One advantage to a rainy day fund is that it can help you minimize debt, thereby reducing interest expenses. Which leads us to our next challenge.

One in five business owners who applied for funding during the prior five years was denied, according to Nav’s Small Business American Dream Gap Report , and 82% of all the business owners surveyed didn’t know how to interpret their companies’ credit scores. The research also shows that individuals who have a better understanding of their business credit scores are 41% more likely to be approved for a loan.

As we discuss in our piece on determining valuations, there are five main paths to raising capital:

A dearth of working capital is a problem for companies of any size, but it can be especially detrimental for smaller entities with fewer resources. While having cash on hand every month to pay the bills—with some left over—is a good thing, a lack of capital can prevent a small business from hiring, expanding into additional markets and exploring new opportunities.

How to improve your chances of getting a loan, attracting an investor or otherwise accessing capital?

With an automated financial management platform in place, you can easily create these reports and have them ready to present when that investor or banker asks for them.

Entrepreneurs are rightfully proud of “bootstrapping” their way to success, so it’s not unusual for business owners to take on debt to launch their businesses. But there absolutely is such a thing as too much business debt. Maybe they ran up a little too much money on a personal credit card, or perhaps their local banker extended a line of credit that’s now used up and commanding a high interest rate.

Whichever debt vehicle was tapped into, these situations can have significant short- and long-term impacts on the company. For example, it can take time for a firm’s positive cash flow to start, and in the meantime, there are employees, suppliers and overhead to pay.

Here are four steps you can take to minimize your business debt levels and get your finances back on track:

Small businesses must record all financial transactions, often with the help of a bookkeeper. Those items include sales, expenses and earnings. While private companies aren’t required to report financial data, poor record keeping can lead to serious problems. Misstating revenue on tax forms and improper deductions can result in fines, interest charges or even jail.

For public companies, not reporting financial data, or filing inaccurate reports, can lead to financial losses and time spent trying to fix problems.

Accurate reporting is crucial when filing tax forms required by local, state and federal taxing authorities—and potentially other governing bodies, depending on where your business is located. Reports must be filed on time or the company may face fines and other penalties.

Not recording transactions accurately can create a snowball effect, hurting monthly cash flow and impacting other financial reports. This is also something that will cause you big problems with auditors.

Some business owners create reports based on data retrieved from spreadsheets and receipts, while others use automated systems to run this aspect of their companies. With a dedicated ERP system, companies get more than automated, accurate financial statements. A modern financial reporting solution delivers real-time financial analysis and modeling across every dimension of your business for detailed insights into corporate performance and improved decision-making.

Cash management is difficult enough as it is; there’s no point in complicating things by overpaying the IRS. Still, up to 85% of small businesses overpay on their federal income taxes each year. Others underpay and wind up on the wrong side of the IRS or other authorities. Both situations take time, effort and money to work through.

One of the biggest issues that businesses face regarding federal taxes isn’t payment. It’s the cost of compliance. And this burden hits small businesses proportionately harder than their larger counterparts. According to the IRS , companies with under $1 million in revenue bear nearly two-thirds of business compliance costs.

Suppliers, landlords and utilities want to get paid on time. And while the occasional late payment may be overlooked, consistently remitting payments late can cost a small business dearly. Damaged supplier relationships, being cut off from needed services and constantly running behind the debt eight-ball can all have a profound impact on a company’s financial health.

About 55% of companies still handle their accounts payable (AP) processes manually, says PayStream Advisors. That’s time-consuming and prone to fraud and mistakes. An automated system saves significant money and time; it also reduces data-entry errors and helps prevent fraud through a system of “touchless” controls that run behind the scenes. Combined, these functionalities translate into important benefits for companies that adopt accounts payable automation software.

Accounts payable automation software helps reduce the number of manual tasks that finance staffers must perform . For example, instead of manually managing vendor invoices and recurring expenses, organizations can use an automated system to submit invoices, manage the invoice approval process and send payments to vendors.

Keeping personal and business funds separate is one of those “Business 101” lessons that some owners of small companies choose to ignore. In fact, more than one-quarter of small businesses do not have separate business bank accounts, according to a Clutch survey, and 23% of firms cite mixing business and personal finances as a challenge facing their companies.

These business owners’ concerns are legit: Commingling business and personal funds is a risky practice that makes it difficult to monitor cash flow and could ultimately damage the value of a company. Auditors, whether from the government or an internal audit, will see this as a big red flag.

Avoid this problem by opening a business account and using it to manage all company-related inflows and outflows—including your own salary, which should be a set amount versus just a land-grab at the end of every month. Your bank may also offer a business credit card that you can use to manage your cash flow while running your business versus using your own personal card. That way, when you need to substantiate deductions or other transactions, all business-related items will be easily accessible and neatly organized.

Finally, growth, including of your bank account, requires soliciting your value proposition—a perpetual challenge for small-business owners.

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If you’re not continually signing up new customers, you’re ceding them to competitors. And while some “boutique” or small businesses can get by serving the same handful of clients year after year, companies with growth and profitability aspirations need new clients to help them achieve those goals.

To get these clients, business owners must deploy marketing strategies that attract, engage and retain customers. This is one area where companies that do get it right can really shine.

While some companies outsource marketing to third parties, others get creative and tackle it in house. You can get a lot of awareness on a small budget by using some guerilla tactics. And, many how-to resources exist, such as the marketing news and topics section on , where you can find relevant articles and videos to help you spread the word about your business—and drive new sales. Even finance leads can help with social marketing efforts in some surprising ways.

Financial challenges are a reality for all companies, but they can be especially challenging for small-business owners who are trying to get out of the gate without going broke in the process. By following the advice outlined in this article, you’ll avoid some or all of these issues while positioning your company for success in any market.

Financial Management

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Harvard Business School Online's Business Insights Blog provides the career insights you need to achieve your goals and gain confidence in your business skills.

Why Problem-Solving Skills Are Essential for Leaders in Any Industry

Business man leading team in problem-solving exercise with white board

Any organization offering a product or service is in the business of solving problems.

Whether providing medical care to address health issues or quick convenience to those hungry for dinner, a business’s purpose is to satisfy customer needs .

In addition to solving customers’ problems, you’ll undoubtedly encounter challenges within your organization as it evolves to meet customer needs. You’re likely to experience growing pains in the form of missed targets, unattained goals, and team disagreements.

Yet, the ubiquity of problems doesn’t have to be discouraging; with the right frameworks and tools, you can build the skills to solve consumers' and your organization’s most challenging issues.

Here’s a primer on problem-solving in business, why it’s important, the skills you need, and how to build them.

Access your free e-book today.

What Is Problem-Solving in Business?

Problem-solving is the process of systematically removing barriers that prevent you or others from reaching goals.

Your business removes obstacles in customers’ lives through its products or services, just as you can remove obstacles that keep your team from achieving business goals.

Design Thinking

Design thinking , as described by Harvard Business School Dean Srikant Datar in the online course Design Thinking and Innovation , is a human-centered , solutions-based approach to problem-solving and innovation. Originally created for product design, design thinking’s use case has evolved . It’s now used to solve internal business problems, too.

The design thinking process has four stages :

4 Stages of Design Thinking

Using this framework, you can generate innovative ideas that wouldn’t have surfaced otherwise.

Creative Problem-Solving

Another, less structured approach to challenges is creative problem-solving , which employs a series of exercises to explore open-ended solutions and develop new perspectives. This is especially useful when a problem’s root cause has yet to be defined.

You can use creative problem-solving tools in design thinking’s “ideate” stage, which include:

It can be tempting to fall back on how problems have been solved before, especially if they worked well. However, if you’re striving for innovation, relying on existing systems can stunt your company’s growth.

Related: How to Be a More Creative Problem-Solver at Work: 8 Tips

Why Is Problem-Solving Important for Leaders?

While obstacles’ specifics vary between industries, strong problem-solving skills are crucial for leaders in any field.

Whether building a new product or dealing with internal issues, you’re bound to come up against challenges. Having frameworks and tools at your disposal when they arise can turn issues into opportunities.

As a leader, it’s rarely your responsibility to solve a problem single-handedly, so it’s crucial to know how to empower employees to work together to find the best solution.

Your job is to guide them through each step of the framework and set the parameters and prompts within which they can be creative. Then, you can develop a list of ideas together, test the best ones, and implement the chosen solution.

Related: 5 Design Thinking Skills for Business Professionals

4 Problem-Solving Skills All Leaders Need

1. problem framing.

One key skill for any leader is framing problems in a way that makes sense for their organization. Problem framing is defined in Design Thinking and Innovation as determining the scope, context, and perspective of the problem you’re trying to solve.

“Before you begin to generate solutions for your problem, you must always think hard about how you’re going to frame that problem,” Datar says in the course.

For instance, imagine you work for a company that sells children’s sneakers, and sales have plummeted. When framing the problem, consider:

While there’s no one right way to frame a problem, how you do can impact the solutions you generate. It’s imperative to accurately frame problems to align with organizational priorities and ensure your team generates useful ideas for your firm.

To solve a problem, you need to empathize with those impacted by it. Empathy is the ability to understand others’ emotions and experiences. While many believe empathy is a fixed trait, it’s a skill you can strengthen through practice.

When confronted with a problem, consider whom it impacts. Returning to the children’s sneaker example, think of who’s affected:

Empathy is required to get to the problem’s root and consider each group’s perspective. Assuming someone’s perspective often isn’t accurate, so the best way to get that information is by collecting user feedback.

For instance, if you asked customers who typically buy your children’s sneakers why they’ve stopped, they could say, “A new brand of children’s sneakers came onto the market that have soles with more traction. I want my child to be as safe as possible, so I bought those instead.”

When someone shares their feelings and experiences, you have an opportunity to empathize with them. This can yield solutions to their problem that directly address its root and shows you care. In this case, you may design a new line of children’s sneakers with extremely grippy soles for added safety, knowing that’s what your customers care most about.

Related: 3 Effective Methods for Assessing Customer Needs

3. Breaking Cognitive Fixedness

Cognitive fixedness is a state of mind in which you examine situations through the lens of past experiences. This locks you into one mindset rather than allowing you to consider alternative possibilities.

For instance, your cognitive fixedness may make you think rubber is the only material for sneaker treads. What else could you use? Is there a grippier alternative you haven’t considered?

Problem-solving is all about overcoming cognitive fixedness. You not only need to foster this skill in yourself but among your team.

4. Creating a Psychologically Safe Environment

As a leader, it’s your job to create an environment conducive to problem-solving. In a psychologically safe environment, all team members feel comfortable bringing ideas to the table, which are likely influenced by their personal opinions and experiences.

If employees are penalized for “bad” ideas or chastised for questioning long-held procedures and systems, innovation has no place to take root.

By employing the design thinking framework and creative problem-solving exercises, you can foster a setting in which your team feels comfortable sharing ideas and new, innovative solutions can grow.

Design Thinking and Innovation | Uncover creative solutions to your business problems | Learn more

How to Build Problem-Solving Skills

The most obvious answer to how to build your problem-solving skills is perhaps the most intimidating: You must practice.

Again and again, you’ll encounter challenges, use creative problem-solving tools and design thinking frameworks, and assess results to learn what to do differently next time.

While most of your practice will occur within your organization, you can learn in a lower-stakes setting by taking an online course, such as Design Thinking and Innovation . Datar guides you through each tool and framework, presenting real-world business examples to help you envision how you would approach the same types of problems in your organization.

Are you interested in uncovering innovative solutions for your organization’s business problems? Explore Design Thinking and Innovation —one of our online entrepreneurship and innovation courses —to learn how to leverage proven frameworks and tools to solve challenges. Not sure which course is right for you? Download our free flowchart .

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8 Factors That Keep You From Getting a Small Business Loan

Simone Johnson

Small business loans are not easy to secure. Here are eight things that may be preventing you from getting the funding you need.

Business loans can be essential to launching a startup or expanding an existing company, with funds often used to secure inventory, purchase equipment, rent operational space, hire employees or cover a host of other expenses. However, business loans can be difficult for new companies to get. Be aware of these eight roadblocks that can keep you from getting approved for a small business loan. [ Learn More: See Our Top Picks for The Best Business Loans . ] 

1. Poor credit history

Credit reports are one of the tools lenders use to determine a borrower’s credibility. If your credit report shows a lack of past diligence in paying back debts, you might be rejected for a loan.

Paul Steck, COO of Spread Bagelry, has worked with hundreds of small business franchisees, many of whom have bad personal credit as a result of illness, divorce or other extenuating circumstances.

“Sometimes, very good people, for reasons beyond their control, have credit issues, and unfortunately, that’s a real barrier to entry in the world of small business,” said Steck.

It is difficult to qualify for a small business loan with a credit score lower than 700. 

“A score of 720 seems to be the magic number, above which your likelihood increases dramatically and below which it decreases dramatically,” said Brian Cairns, founder of ProStrategix Consulting, which provides a host of services to startups and small businesses.

If your score is under 700, Cairns recommends you focus on fixing it if you can. Begin by checking your personal and business credit scores to ensure they are accurate. If you find any errors, correct them before beginning the loan application process. You can order a free personal credit report yearly from each of the three credit-reporting companies on or individually from each credit-reporting agency – TransUnion , Equifax and Experian . To check your business credit score, contact Equifax, Experian and Dun & Bradstreet .

Additionally, you should build a strong personal credit score and drive down any debt prior to applying for a business loan.

“The better your personal finances are upfront, the more likely you are to be approved for a good loan option,” said Jared Weitz, CEO and founder of United Capital Source, a lender for small and midsize businesses.  

“Most loans require some form of down payment, and this is typically varied based upon the borrower’s financial history and the collateral put up for the loan,” Weitz added. “Based on this, most loans range from zero to 20% down payment for the loan.”  

If your credit is still far from ideal after you take these steps, consider  nontraditional financing options  – which tend to place less emphasis on credit scores – before giving up on getting a loan.  

“Angel investors, or individuals interesting in backing the business in exchange for a share in the eventual revenue, can be a way to help get your business off the ground,” said financial attorney Leslie Tayne of Tayne Law Group. 

Editor’s note: Looking for a small business loan? Fill out the questionnaire below to have our vendor partners contact you about your needs.

2. Limited cash flow

Cash flow – a measure of how much cash you have on hand to pay back a loan – is usually the first thing lenders look at when gauging the health of your business. Insufficient cash flow is a flaw that most lenders can’t afford to overlook. Therefore, it’s the first thing you should consider to determine if you can afford a loan.

“Really thinking through that cash flow equation is like preventative medicine for your business,” said Jay DesMarteau, head of regional commercial specialty segments for TD Bank. “You can either wait until your business gets sick, or you can do things to prevent it from getting sick.”

One of the preventative measures DesMarteau recommends is to calculate your cash flow at least quarterly. If you take that step, you may be able to optimize your cash flow before approaching potential lenders.

To figure out how large of a loan payment you can afford, divide your net operating income by your total annual debt to calculate your debt service coverage ratio. You will have a ratio of 1 if your cash flow is equal to your monthly loan payments. Though a ratio of 1 is acceptable, lenders prefer a ratio of 1.35, which demonstrates you have a buffer built into your finances.

“If you’re not sure of your current financial position or capacity, sit down with a financial planner to help you gain the perspective you need and create an action plan to address any lacking areas,” said Chad Rixse, director of financial planning and wealth advisor at Forefront Wealth Partners.   

3. Lack of a solid business plan

Having a plan and sticking to it is much more attractive than spontaneity in the finance world. It also gives you a better chance of getting a business loan.

“Lenders want to see that you have a well-thought-out plan for your business,” Tayne said. “Applying for a loan with no business plan or with a half-baked plan will not bode well.”

It isn’t uncommon for very small businesses not to have a formal business plan – or any plan at all – but you’ll still need to put in the time and work to develop a comprehensive business plan before ever walking into a lender’s office.

“If you don’t have a documented plan in place, with financial information and projections, your chances of receiving the big loan you want will dwindle,” said Weitz.

A standard business plan includes a summary of your company, market, products and financials. If you’re not sure your plan is persuasive enough to sway the lender, consider seeking the advice of a business plan expert who can review it and offer feedback.

You should also be prepared to explain how you plan to use the money you want to borrow. 

“Applicants can position themselves much better by being able to call out exactly what they need and what they need it for,” said Bernardo Martinez, the former U.S. managing director for Funding Circle, a small business loan platform.

“Instead of asking for $100,000 in working capital, if an applicant says they need $33,000 for inventory in advance of their busy season, $37,000 for new hires, $20,000 for upgrades to their store and $10,000 for advertising, we are much more confident in their ability to effectively deploy the funds,” Martinez added.

At the bare minimum, loan applicants should be prepared to explain why they want a loan and how they plan to repay it.

4. Too many loan applications

Some business owners assume they can cover all their bases by applying for multiple loans at one time. This way, they can pick and choose from a range of potential loan offers . However, opening too many loan applications at once can be a red flag for credit bureaus.

5. Disorganization

Before approaching potential lenders, business owners should have their act together. That means having all the paperwork necessary for your loan application on hand.

“One of the things that can be a problem when applying for a loan is if business owners don’t have the documentation that the bank will require,” Steck said. 

Obligatory documentation often includes a detailed business plan and proof of collateral; extensive financial records such as income tax returns, personal and business bank statements, loan history, and a balance sheet; and legal paperwork, such as franchise agreements, business licenses and registrations.

There are many resources that business owners can refer to when putting together their loan applications. The Small Business Administration, for example, provides a highly detailed loan application checklist for borrowers. Using these resources decreases your likelihood of coming across as disorganized or unprepared.

Careless errors will land your application in the rejected pile. “Filling out the application incorrectly or omitting information is another common mistake that can lead to your application getting denied,” Tayne said.

Tayne also pointed out that sloppy bookkeeping and inconsistent business practices, such as mixing business and personal bills together or not filing tax returns, can prevent you from getting financing. She advises taking the time to gather all the necessary information, fill out the forms completely, and read over your application before submitting.

6. Failure to seek expert advice

When you apply for a business loan, lenders want to see that you’ve sought guidance from knowledgeable advisors.

Accountants can be an important source of advice for small business owners, according to Stephen Sheinbaum, CEO of Circadian Funding, which helps small and midsize businesses obtain working capital. 

“But there are many other places to find good people to talk to, such as the  Service Corps of Retired Executives (SCORE) , a free mentoring service that is supported by the Small Business Administration,” he said. SCORE connects you to retired businesspeople with experience in your market. “This is important because they will know about the kind of capital that is most important to people within your industry.”

Sheinbaum also recommends that business owners get financial advice from business networking groups and conduct research on the websites of the leading alternative funders, since many have detailed resource sections for small businesses about the many kinds of available capital and the best ways to prepare for funding.  

Other resources that provide counseling, advice and financial assistance for new businesses include the regional and local offices of Veterans Business Outreach Centers and Women’s Business Centers.

7. Failure to shop around

Finding a lender can feel so daunting that it might be tempting to sign up with the first one that comes along. But blindly pursuing one loan provider without exploring your other options is a mistake. Take the time to research a variety of traditional and alternative lenders to find the best fit for your business. 

Financial institutions in the community where you plan to do business are an ideal place to start looking for a business loan, according to Logan Allec, a CPA and founder of the personal finance site Money Done Right. “Start with a community bank or credit union that is more invested locally, as they may have certain programs to be able to work with new local businesses.”

The SBA also provides federal backing for some businesses to receive loans through partner financial institutions. “This can be an excellent avenue to explore if you are having trouble finding a traditional lender for your business,” Allec said. 

Other alternatives to traditional lenders are online lending platforms, peer-to-peer lending sites, and your own network of friends and relatives. If you pursue this last option, Allec suggests working up an official, notarized agreement to avoid any misunderstandings or conflicts down the road between all the involved parties. 

When shopping around, you can also request that each lender help you calculate the annual percentage rate of their loan offer.

“The APR tells you the true cost per year of borrowing money; it takes into account your interest rate plus any additional fees and charges,” Martinez said. “This will help you make an apples-to-apples comparison of different loan offers.”

So much of the application process for a business loan is methodical, directed by the orderly presentation of concrete documentation, that it’s easy to forget there is an innately emotional component to this process as well. Too many business owners simply don’t demonstrate why they, rather than someone else, are a good candidate for a loan. They approach lenders with an apathetic attitude, according to Steck.

In addition to making a sound business case for why you should qualify for a loan, you need to exude enthusiasm and faith in your venture to draw in the lender and makes them a believer. To do this, you must tell a story about your business that the lender finds compelling.

“‘I’m going to do this, and I’m going to be the best in the whole wide world’ – you have to go into it with that sort of mentality, and a lot of potential borrowers don’t do that,” Steck said.

Weitz echoed this sentiment. “The more prepared, serious and passionate you appear about your business, the more trust a lender will have with approving you for the loan.”

What are the different types of business loans?

Depending on your needs, you have many kinds of lending options. Here’s a brief overview of the most common types of business loans. 

These small business loans are processed by participating lenders – which are often banks – but, because they are guaranteed by the U.S. Small Business Administration, lenders have more confidence in repayment. Even if the borrower defaults on the loan, the lender will still get back up to 85% of its money from the government. The maximum loan amount you can receive for an SBA loan is $5 million. SBA loans are desirable for small businesses because the rates and terms are lower and more lenient than many other options. 

Short-term loans

Typically offered by banks and online lenders, short-term loans range from $5,000 to $250,000. They are generally repaid in less than a year. It takes up to two days for borrowers to receive funding from this type of loan. [ Related Content: What is a Term loan? ] 

Long-term business loans

Instead of providing funding for startup costs, long-term loans are meant to help grow established business. They are often not fully repaid for several years, but they have low monthly interest rates. You can generally secure long-term loans of up to $100,000 from banks.

Bad-credit loans

Online or direct alternative lenders are often willing to provide financing options for borrowers with bad credit. With these lenders, your credit score isn’t the determining factor for approval. Instead, they consider your cash flow and recent bank statements to determine your eligibility for the loan. While you can typically be approved quickly, you are likely to face high interest rates and/or brief payback periods. 

Secured loans

Secured loans require collateral from the borrower, which can be property, vehicles, equipment, stocks or other assets of value.  Banks and credit unions offer secure loans are often easier for new businesses to get and have lower interest rates than unsecured loans. Loan amounts typically range from $50,000 to $100,000.  

Unsecured loans

Unsecured business loans don’t require collateral, but because this makes the loan riskier for the lender, interest rates are often higher, and borrowers must have high credit scores to qualify. Unsecured loans are usually offered by online lenders – including peer-to-peer lenders – and by banks and credit unions as personal loans. Loan amounts can go as high as $50,000.  

Merchant cash advances

Merchant cash advances are available from dedicated merchant cash advance companies and some credit card processors. It’s a loan against your business’s future earnings that you repay through a percentage of your credit card sales. It is a fast way of securing funding because it doesn’t require collateral, which means quicker turnaround for approval, but interest rates can be very high. It’s typically used by retail stores or restaurants. Merchant cash advances can range from $5,000 to $500,000, and repayment terms vary between three and 18 months.   

[ More information on cash advances: Small Business Loan vs. Cash Advance: What’s the Difference? ]

Equipment financing

Equipment financing is a loan from online lenders that you take out to purchase tools or other equipment for your business. It doesn’t require a down payment, which helps you preserve your capital and maintain cash flow. The equipment you buy is considered the collateral for this type of loan, which means that if you default on the loan, the equipment you bought will be repossessed. Loan terms range from two to 10 years, and amounts range from $100,000 to $2 million.  

Invoice factoring

Invoice factoring is when your company sells its invoices to a factoring company for cash. This helps you maintain cash flow for your business. The factoring company gets paid once your customers pays their balance.  Invoice financing helps you avoid cash shortfalls, but it’s usually more expensive than other types of funding. It also limits the control and communication you have with your clients. For example, you can’t decide how the invoice company collects invoice payments from your customers.

How do you apply for a business loan?

When you apply for small business financing, it’s important to understand what information small business lenders need from you so you can gather the appropriate documents. Typically, you will need these documents: 

Your credit score and history will be taken into consideration, so it’s helpful to have good credit, which usually means a score in the range of 690 to 850. Scores below 689 are considered fair credit, and those below 300 are considered bad credit. 

Cash flow is another important factor for business lenders, because they want to ensure you have enough revenue and sales to pay them back. Your debt-to-income ratio is also vital – the more debt you have, the more difficult it will be to get approved. For new small business loans, lenders prefer a 1.35 debt-to-income ratio. 

Lenders want to see that you have a strong business plan and blueprint for continuous profit, showing them that you can repay the loan. This is especially important if your new business doesn’t yet have steady cash flow.  

Some lenders will request collateral. As mentioned above, collateral can take many forms – property, vehicles, stocks or any asset of value – but you must understand that if you fail to repay the loan, the lender will keep the assets you pledged.  

After you submit your business loan application, depending on the lender and the type of loan, it can take days, weeks or even months to get approved. 

Paula Fernandes and Elizabeth Peterson contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.

business loan problem solving

How to Create a Safe and Inclusive Learning Environment for LGBTQIA+ Students

General Mathematics Module: Solving Problems on Business and Consumer Loans

In previous lessons, you learned how to solve simple and compound interests. In the most recent lesson, you studied the basic concepts of business and consumer loans. You understand definitions such as annuities, interests, loans and collaterals.

In this lesson, you will study the application of business and consumer loans in real life situations. To better appreciate this module let us first consider the following situations:

(a) Mario came from a poor family. His parents have no stable jobs. But due to Mario’s determination, he excelled and was able to graduate college. After being permanent for 2 years in his work, Mario dreamt of providing a simple and decent shelter for his family. What do you think Mario should do?

(b) Cathy finished Senior High School in her hometown. She took a TVL strand in dressmaking, However, because of financial problems she was not able to continue in college. She decided to help her mother in their small business of dressmaking. Their business increased in production due to her hardwork. Subsequently, Cathy decided to venture in a larger scale and wished to export their Filipiniana-style products. But this would need a bigger capital. What do you think Cathy should do?

(c) During his STEM high school years, Albert was fond of experimenting on RC motors. In his engineering years in college, he creatively thought of experimenting about perpetual motion that could provide energy to machines. However, he was short of finances to start this project which is primarily Filipino-made. What do you think Albert should do?

Well, you should probably answer all three situations by finding money. Generally, it is correct. But what are the options to do that? One of the options can be found in this module. So, study diligently this module because these are all situations in which you might find yourself in the future. So, by studying this module you may be given an idea of different decisions you can make to fulfill your dream.

After going through this module, you are expected to solve problems on business and consumer loans (amortization and mortgage).

This Self-Learning Module (SLM) is prepared so that you, our dear learners, can continue your studies and learn while at home. Activities, questions, directions, exercises, and discussions are carefully stated for you to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you step-by-step as you discover and understand the lesson prepared for you.

Please use this module with care. Do not put unnecessary marks on any part of this SLM. Use a separate sheet of paper in answering the exercises and tests. And read the instructions carefully before performing each task.

General Mathematics Quarter 2 Self-Learning Module: Solving Problems on Business and Consumer Loans

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