(Newswire.net — February 19, 2018) — Many businesses wonder why lenders are not interested in doing business with them. Business owners require financing for various reasons that range from debt consolidation and cash flow problems to purchasing new equipment and stock and expansion.
Regardless of why you want to apply for a business loan, your success is determined by how confident a lender is about your ability to make repayments. Being aware of why a business loan application was rejected can be helpful for the next time you apply for financing.
Wrong Lender
Sometimes your loan may be rejected because you applied with the wrong type of lender. Lending criteria varies among different financial institutions. Although a conventional bank may not be willing to grant you a business loan, you may be eligible for a loan from an online lender.
However, a rejected application can increase the risk when you apply somewhere else. While some providers are more lenient, you may have to contend with higher fees and rates as a result of the numerous inquiries that are listed on your report.
Lacking Collateral
Banks generally need security for loans and not holding a business or personal asset like retained income, a vehicle, property or other type of investment can lead to your application being rejected. Prior to submitting a business loan application, find out what is regarded as collateral. Using your assets as security is an effective way to improve an application and grow your business.
Cash Flow Challenges
It is normal for businesses to experience cash flow problems but a business that is constantly in the red can minimize the chances of a loan being approved. When lenders observe that there is no money for daily operations, this indicates that you are not capable of making loan repayments.
It is also essential to note that you will not automatically qualify for a business loan because you have good cash flow. Another major consideration is how long you have been in business.
Bad Credit
While business loans may be available for bad credit, an unfavorable credit file can prevent you from receiving a conventional business loan. Lender will not be willing to approve an application for another loan if you are not able to honor your current financial obligations.
Reasons for Loans
A lender is unlikely to issue a loan for mundane reasons. They want to ensure that that a loan will serve the purpose of helping you grow the business in order for you to be able to pay them back. Reasons for business loans should ideally be rational such as advertising, product development, financing important equipment and purchasing real estate.
Business Plan
Without a clear written business plan, your loan application may not be considered. Make sure you have a thorough and update business plan that can demonstrate the research you have conducted, your knowledge about your customer base, goals and sales estimates.
Debt
If your business is already struggling with debt, lenders will be reluctant to extend further credit to you. Maintain low balances by ensuring your loans are paid down, Negotiate with your creditors if you are unable to payoff debts early.
New Businesses and Startups
While many business owners wish their ideas can inspire investors to give them the cash they need, the reality is that a track record, revenues and experience are priorities for lenders. Startup companies may have better luck with alternative sources such as online lenders.