Explain one reason why a new business could find it difficult to raise external finance.

One reason why a new business could find it difficult to raise external finance is due to lack of credit history. Here's a step-by-step explanation:

1. Credit History: When a business is new, it has no credit history. This means there's no track record of how the business has handled debt in the past.

2. Risk Assessment: Lenders and investors use a business's credit history to assess the risk of lending or investing. They want to see that the business has reliably paid back its debts in the past.

3. High Risk: Without a credit history, a new business is seen as a high-risk investment. Lenders and investors may be hesitant to provide funds because they have no assurance that the business will be able to pay back the debt.

4. High Interest Rates: If a new business does manage to secure external finance, it may be at a high interest rate to compensate for the risk. This can make the loan more expensive and difficult for the business to pay back.

5. Limited Options: Finally, without a credit history, a new business may have limited options for external finance. Some lenders and investors may simply refuse to work with a business without a credit history, limiting the business's options for raising funds.