Getting a small business loan for your small business can be extremely exasperating, specifically for new business owners who don’t know about the situation and details. Despite having more and more business financing options available, such as online lenders, it’s still daunting task for small businesses to get access to capital. In case that was not bad enough, the increasing financing options currently available can clearly making the things worse for small businesses.
To make the matters clear, here are some of the common reasons why your small business loan was rejected, and how to fix these issues.
- Fail to Understand Your Credit Score
One of the major reasons why a small business loan is rejected because the business owners were not aware of their credit rating. In fact, 45% percentage of the business owners surveyed weren’t even aware that they had a business credit rating. Additionally, 72% failed to realize where to find information about the credit score. Even more upsetting, more than 8/10 small business owners accepted that they failed to recognize how to understand their rating.
Being aware of your credit score before applying for a loan will inform you if you have bad, or no credit in any respect. If that is the case, you can be certain that your loan application will be denied due to the fact that you are too much of a risk.
Therefore, you need to check your credit report before applying for any loan. The good thing is that when your review your credit score, you can repair or build your credit by making well timed payments, keeping your debts low, fending off opening too many lines of credit, and keeping current credit accounts open.
- Inadequate Cash Flow
Lenders also need to make certain that you are able of repaying your loan each month, on-top of being able to cover rent, payroll, inventory, and other expenses. Therefore, if you are spending more money each month then what is coming, then you definitely need to fix that cash flow problems. The easiest approaches to solve any cash flow issues is to invoice quickly, instituted late fees, have an emergency fund, and remove pointless expenses.
- Inadequate Collateral
Lenders normally are not inclined to risk lending their money to businesses without some sort of promise of repayment. In other words, they need physical property that they can take if a loan is not repaid. You need to create a collateral list that include the whole lot you may place up as collateral. You can include both business and personal assets since your business may not have the real estate or equipment to present as collateral. If so, you may have to offer your car or home as collateral.
- You Run an Early Stage Startup
The fact is that lenders need to see a track record, strong revenues, and some experience in the market. That is not to mention that it is absolutely impossible to get funding for your early-stage startup business. You may need to seek alternative sources like crowdfunding, online lenders, grants, or small business loans by the government.
- Already Have Too Much Debt
In case you or your business is already suppressed with debt from previous loans or lines of credit, lenders will probably be hesitant in offering any additional credit to you. Make certain that you pay down loans and maintain low balances on any lines of credit that you have. In case you can’t manage to pay off your debts as early, then negotiate with them. Most credit card providers, for instance, will give you a lower interest rate, which means you can pay that balance off quickly without taking all that interest on.
- Have No Solid Marketing Strategy
Without a solid business plan, investors possibly won’t consider your loan application. To make sure that your loan is accepted after it’s been submitted, ensure that you have an updated and detailed business plan that reveals that you’ve conducted research, proves that you know your market and customers, has a clear mission statement with objectives in place, and includes an estimate of sales and profit projections.
The Small Business Administration (SBA) additionally advocates that moreover your business plan, make sure that you have collected and organized your personal credit history, resume, tax returns, financial statements, bank statements, and legal documents like articles of incorporation.
- The Reasoning For A Loan
Why do you need a small business loan? Is it due to the fact that you need to purchase a lavish workplace filled with pointless business assets for all your workers? That all sounds exquisite, but a lender isn’t going to issue you a loan for all these reasons. They actually need to make sure certain that loan will be used to develop your business so that you can pay them back.
Rather, your reasoning for a loan should a reasonable real estate purchase, financing important equipment, long-term software and product improvement, marketing, or covering periodic sale variance.
- Outside Conditions Are Risky
There are also times when outside conditions can have an impact on the decision of lender. In case you want to increase your food delivery service, but there are either growing fuel or food costs, a lender may additionally take into account the loan too perilous because those hovering costs can also make it even more difficult in order to turn-a-profit. You need to make sure that you do your homework and keep-up with the latest business trends.