Why could your business loan be rejected?

Securing a loan for your startup venture or for keeping your business afloat can be incredibly challenging. Despite having many business financing options, getting a loan is still hard, especially for first-time business owners who don’t understand the requirements.

To get a better understanding, here are the common reasons why your business loan could be rejected:

Your Credit Score is too Low

A low credit score is one of the reasons why the lender may reject your application. Your personal and business credit score acts as a reflection of your ability to repay the loan. It is essential to check your personal and business credit reports before applying for a loan and correct any errors that might be lowering your score.

You Don’t Have Enough Collateral

Your commercial loan application may be declined if you fail to provide enough collateral to secure the loan against. Lenders want the physical property they can take if you fail to settle the loan. However, if you don’t have real estate or equipment to provide, you can list everything you can put up, including your home and car.

You Haven’t Been in Business Long Enough

This is one of the major reasons startups fail to secure loans since lenders deem these businesses to be too young. Businesses in operation for longer periods seem less risky to lenders. While there’s nothing much you can do to speed up the time you’ve been in business, you can look for alternative lenders with less strict time requirements.

You Lack Strong Cash Flow

When applying for a business loan, your lender will want to have specific financial documentation to ensure that you can make your repayments without any problem. If your money is going out more than coming in, then your loan application may be declined.

Your Application is Incomplete

If you didn’t complete the application properly or fail to provide all the required back up information, there are higher chances of your loan application being rejected.

Bottom Line

If you fail to secure a business loan, you need to find out what went wrong to avoid future rejection. Being aware of the above reasons and taking the right steps will increase your chances of getting approval.