(Newswire.net — February 19, 2018) — After establishing the business, the main concern of small business owners is to make it grow rapidly. The main hindrance to rapid growth is access to adequate funds. Since personal savings and informal loans from family and friends are generally not adequate, business owners usually approach lenders, typically, banks and credit unions as also other funding agencies. However, many end up being disappointed as their loan applications get rejected. Three of the more common reasons explained to enable you to avoid them:
Poor Credit Score
Even though you may be applying for a business loan, bankers will normally ask about your personal credit score and financial details because a new business would not have chalked up the necessary track record. Further, most lenders think that your personal credit score is a good reflection of what the financial health of your business. If you have a poor credit score because you have defaulted on earlier loans, missed credit card payments or simply taken on too much debt in various forms, your application may be rejected as it will point to you being a poor credit risk. Apart from making you eligible for a loan, a high credit score will also get you a lower rate of interest.
Inadequate Cash Flow
For a lender who wants the reassurance of your business’s ability to repay the loan, the cash flow is extremely important. If the business is not generating adequate cash because of reasons like inadequate sales, extended credit periods, customers paying late, etc. the lender may be unwilling to expose himself to the risk of defaults or delayed repayments. As a business owner, you should also ask yourself if you can afford to take a loan when your cash flows are poor. It can be more useful to improve the cash flow first and then apply for a loan. You can ask the experts for a complimentary evaluation.
Lack of Business Experience
It is in the nature of lenders to lend to borrowers who have an established business track record because of the assurance they get that the borrower has had experience of running the business and know enough about surviving in a competitive environment. Thus, there are many lenders who will only look at loan application of businesses that have been in existence for at least 2-3 years. They are even ready to give more favorable terms to businesses that have done well and built up a stable track record. If your business is a startup, the lack of any financial or operational track record may disqualify your loan application. In this case, you will need to look at lenders who are in the business of funding companies like yours; typically the loans will be for a shorter period and you will be paying a higher rate of interest.
Conclusion
Getting a business loan application approved is not an easy task for entrepreneurs. You need to provide enough reasons to convince lenders that your business is viable and you are a good business risk.