Why your business loan may get rejected
Of the many small businesses that apply for loans every year, only half are approved. According to lending experts, there are four primary reasons why small business loans get rejected.
Bad credit or no credit is a red flag for lenders. Would you loan money to someone in a shaky financial position? Neither would a bank. If you do manage to get a loan, it will come with sky-high interest rates and other unfavorable terms. With no credit, banks consider you a financial wild card.
The amount you can borrow depends on the value of your assets. Many new businesses have no collateral to offer. If they do, it might not be enough. Borrowers can use personal property to secure a business loan, but it’s a risky move.
Online lenders don’t require collateral and may be willing to approve your loan. However, just as with poor credit, the interest rate you’ll pay will be high.
Limited Cash Flow
Lenders want evidence that there’s enough cash flow to cover expenses. The bottom line is whether there is more money coming in than going out. This can be a significant drawback for small businesses that are not yet up to speed.
Make it easy for your banker to move through your application process. Arrive armed with essential documents like bank statements, credit reports, financial plans, and tax returns. Provide copies of relevant legal documents including leases, licenses, and permits.
According to the Harvard Business School, small business loans tend to be under $100,000. However, banks actually prefer larger loans because they’re more profitable. Also, it helps if you know the banker.
Experienced lenders look at these factors, but they don’t stop there. Many small businesses have missing tax returns or outstanding tax liabilities. These issues must be resolved, but they need not be a deal-breaker.
Private Eyes provides lenders strategies they can employ to resolve tax compliance issues.
Have questions? Speak to an expert for more information.