Business loans are a lifeline for many businesses. In fact, most entrepreneurs will not be able to get their business off of the ground without some type of funding. Unfortunately, many people end up getting their business loan rejected. If you know why your business loan application was rejected, then you will have an easier time getting approved.
Your Credit Score is too low
Most lenders will look at your credit score before they decide to approve you for a loan. While some types of loans, like car title loans, are designed to be secured with an asset so bad credit is not a hindrance, business loans usually require good credit standing. The minimum credit score will depend on the lender. However, if your credit score is too low, then your application will likely be rejected.Your payment history is one of the top factors that determines your credit score. That is why many lenders assume that you will not pay the loan back if your credit score is too low. If your credit score is not where it should be, then you should spend time working on it. Paying bills on time and reducing debts are the best ways to improve your credit.
Inadequate Cash Flow
The main thing that lenders want to know is whether you will be able to pay back the loan. That is why they will ask to see a copy of your financial statements. If they see that you are spending more money than you have coming in, then they will be less likely to approve you.There are some things that you can do in order to improve your cash flow. You should try to trim your expenses wherever you can. You will also need to make sure that you send out your invoices on time.
You Haven’t Been in Business Long Enough
If you are a new business owner, then you will have a harder time getting approved for a loan. Most lenders want to give money to businesses that are at least a year old. If you have a solid financial history, then you may still be able to get a business loan. However, you will just have to find a lender who is willing to work with a new business owner.
It is risky for lenders to give out money. There is always that possibility that the person will not pay back the loan. However, lenders feel more comfortable lending out money if the person has collateral. Your collateral is physical property that the lender can take if you do not pay back the loan.If you do not have collateral, then you probably will not be able to get a business loan. Your car or home are examples of things that you can use as collateral.
Application Was Incomplete
Many loan applications are rejected because the application is incomplete or filled out incorrectly. This can be frustrating because many business owners spend 20 or more hours working on their application. Not only do you need to have your application filled out correctly but you will also need to send in any supporting documents. This includes things such as permits, contracts and licenses.