There are plenty of different reasons why your small business loan application could get rejected. Many of these reasons are entirely preventable in one way or another. No person’s application is guaranteed for approval, and there is a lot that can go wrong. When you learn about some of these reasons, you can increase your chances of getting the money you need. Whether you want to expand your business or get through a difficult time, this information can help.
- You Don’t Have Good Enough Credit
One of the most common explanations for a rejected small business loan application is bad credit. This is just one of the things that most lenders look at when deciding whether or not to approve a loan application, but it’s very important. If you have bad credit but still need a loan for your small business, you might want to choose a private lender. Most private lenders don’t care about an applicant’s credit as much as banks.
- Lack of Experience
If your business hasn’t been around for very long, you could have trouble getting a loan. The more experience you have as a business owner, the better your chances will be. Lenders look at how long the business has been around, because it’s an indication of its future. There isn’t much you can do about this except finding a lender that maybe doesn’t care as much as others do.
- Your industry is considered risky
There are certain types of businesses that lenders look at as high risk because of how difficult it is to survive. For example, restaurants are considered risky because they are very challenging to keep afloat for very long. If you have such a business, you should look for a lender that specializes in giving loans to people in your industry. This can significantly raise your chances of getting approved for the funds you need.
- High or Low Debt Utilization
If your debt utilization is either too high or low, you could run into problems when trying to get a small business loan. Those who tend to utilize their credit too much can be viewed as high-risk individual who may not pay back the loan. If you don’t use your credit enough, the lender might not be sure what to think. This is all the more reason for you to be responsible with your credit and take a middle-of-the-road approach.
- You Don’t Have Sufficient Collateral
These days a lot of lenders require collateral for small businesses loans. If you don’t have many assets to use as collateral, your application could get turned down. Take a look at all of your assets before applying for a loan. You can also try to get funds from a private lender who doesn’t require any collateral. Just keep in mind that unsecured loans usually come with a higher interest rate, but it might be worth it.
- Inadequate Cash Flow History
When you apply for a small business loan, you will be required to submit proof of your income for at least the last year. If the lender decides that your cash flow is inadequate, they will most likely deny your application outright. You should consider taking some steps to rectify this issue, such as keeping better track of your money and finances. You can also use software to create reports on your cash flow every single month. This could be enough to help you get the loan you need next time.
- You’re Requesting to Borrow Too Much
You need to figure out exactly how much money you require and whether or not you can afford to pay it back before applying for a loan. One of the more common reasons that businesses get denied for a loan is because they ask for too much. If the lender decides that you cannot reasonably pay back the money on time, they won’t give it to you.
- Application Errors
A seemingly simple or small mistake on your loan application could really cost you. It is very important that you take the time to go over your application at least two times before submitting it. Make sure that you have filled out all the required fields. All of the information you submit needs to be completely accurate and up to date. You should never try to lie about anything on a loan application, because it will only backfire.
Anyone who is trying to get a small business loan will need to remember all of the things mentioned in this article. Not everyone who applies for these loans gets them, but there are many ways to increase your chances for approval. The more careful you are about this whole process, the more likely you’ll be to get the funding you need for your business.