What challenges do small businesses face regarding financing?

Small businesses often encounter significant challenges when it comes to securing financing. One primary issue is their difficulty in securing funds, which stems from the perceived risk lenders associate with smaller companies compared to more established businesses. Lenders typically require extensive documentation and a proven track record, which many small businesses may lack, making it harder for them to obtain loans or lines of credit.

High-interest rates are another significant barrier. Because small businesses are considered higher risk, lenders may impose higher interest rates on loans to compensate for that risk. This can lead to increased financial strain as the cost of borrowing becomes more expensive over time, affecting the overall financial health of the business.

Stringent covenants can also be a challenge for small businesses when loan agreements include strict requirements that must be maintained. These covenants might dictate certain financial ratios or operational benchmarks, which could limit the flexibility a small business has in managing its finances and day-to-day operations.

While the other options mention potential problems that businesses may face, they do not directly relate to common financing challenges encountered by small businesses. Excess liquidity and overspending would more likely concern larger businesses or those with more established operations. Limited access to international markets mainly pertains to market expansion difficulties rather than issues in financing. Low demand for products or services