“No one wants to apply for financing only to be answered bluntly NO. It is a normal event in many businesses, so don’t be too disheartened.”
If you requested a small business loan but were turned down, you may be wondering, “what to do now?” While it’s a situation that no business owner wants to be in, it’s not really the end of the story.
Don’t let rejection make you feel bad. Instead, you may take this setback to better learn what lenders seek in an application and where you can strengthen to improve your chances of future financing. Understanding the causes is the first step to a decent future financing proposal. Below we have outlined some of the major reasons your small business loan was rejected.
6 Reasons Your Small Business Loan Was Rejected
To make you understand the causes so you can avoid them, we are sharing the major causes of your business loan rejection.
Poor Credit History
One of the most typical reasons for loan denial is if the lender considers your credit score to be very low. The perfect score varies based on the lender and the situation.
Your credit record provides lenders with information about your payment history and financial management skills. If you have late payments or default on loans your credit score may suffer.
If your company is new and does not already have solid credit, lenders will look to your private credit score to evaluate your credibility. It is suggested that you check your credit report once a year.
To improve your personal and company credit scores, submit on-time payments. Moreover, spend far below your credit limit, and maintain credit accounts intact.
Poor Cashflow
“If a company has inconsistent cash flow or seasonal swings, this could raise a red alert for a lender.”
Cash flow seems to be the first element that a lender actually looks into while considering to grant a loan. When you request a business loan, your lender will demand specific financial records to understand more about your business. Some of these aim to show a significant level of cash flow. Poor cash flow is not only a major cause of business failure, but it also indicates a lack of cash management abilities. A great way to keep your cash flow in good shape is to do precise financial forecasts.
However, with some time, work, and dedication, you can make detailed cash-flow forecasts to help you through difficult circumstances that your company is likely to experience.
Too Much Debt
“The logic goes; How dependable are you when it comes to repaying a loan?”
Potential lenders will be turned down if your company is in too much debt. The lender’s major concern is repayment. When a lender finds you trapped in debt, it’s reasonable for them to be concerned. Keeping low credit balances and paying off previous debts will help you in resolving the situation.
Incomplete Documentation
If the applicant does not fill out the application correctly or did not give enough backup information, the loan request may suffer. Failure to present the right paperwork for a credit renewal increases a company’s chances of being denied.
The best tip we can give is to always have the required documentation. You should have a detailed business plan, financial statements or estimates, personal and business credit scores, tax records, and bank records before asking for a loan from a bank. You must also have copies of important legal documents. Such as your company’s certificate of incorporation, agreements, leases, and any business licenses required to proceed.
If your company intends to apply for a loan, having such paperwork ready might increase the likelihood of approval and ensure that your line of credit is revolving as planned.
Not Having Enough Collateral
Your small business loan request was rejected because you were unable to submit sufficient collateral to obtain a loan.
Many lenders consider small and medium-sized businesses as a risk.
Although collateral is not necessary for all small business loans, it is essential if a business is borrowing against an asset. If you do not have solid assets as collateral, such as machinery, stock, or property, it may affect your loan request. Using personal assets as collateral, such as a house or car, might lower the loan’s interest rate. If personal assets are not a choice, you may have to look into other funding sources.
Your Business Market Is Risky
“Regardless of how successful your company is; lenders may reject your loan application if they consider your industry to be risky or uncertain.”
Some industries are “risky” in eyes of lenders. Traditional small business lenders may have stringent requirements when it comes to providing small company loans for specific industries.
This could include certain agricultural or construction firms, but it will depend on each lender. Restaurants are another good example due to their high failure rate.
So, if you work in an area deemed dangerous by lenders, your quest to obtain capital does not have to end here. Some alternative lenders offer specialized products tailored to certain businesses. Look into lenders who specialize in your sector; they exist.
We Provide
“If you are suffering from cash flow issues or want to fulfill your business expansion plans, contact our team of Funding Specialists right away.”
At Hasanov Capital, we can help bolster business growth with a small business loan or one of our other small business financing options. We are specialized finance and alternative funding platform that is privately owned and operated. We focus on providing capital access to small and mid-sized enterprises in the United States who have typically been neglected by traditional financial institutions. And the ones who may have had trouble receiving timely funding. Contact us right now!
