business loan application
A number of recent news reports suggest that companies are looking it easier to get bank financing and other types of business loans. That would be great news for the overall economy, because the access to capital especially access by privately owned businesses, is a part of job and economic development.

Regardless of the attention the stock exchange market performance obtains, Pepperdine University’s researchers have noted “the association between public stock returns and economic activities has been proven to be meager”. Although, they say, “the GDP development in highly developed economies is considerably driven through the private sector by business activities particularly.”

Many privately owned companies are looking to develop in 2014, but whether they do will be seriously affected by their ability to finance in that development – through revenues or other outside resources.

Why Business Loans Get Rejected

Craig Everett, assistant professor of finance and director at Pepperdine Private Capital Market Project mentioned in his report that “almost 89% of entrepreneurs report having the passion to perform development strategies, however only 46% report getting the required financing to effectively perform development strategies,”

reasons for declined loans

Currently, the Pepperdine University report of entrepreneurs demonstrates that among the small companies that sought bank financing in the last three months, only 39% were doing well as compared to 34% in a report. Craig Everett said in a report that although it still remains difficult for small companies to get bank financing as compared to large firms.

Many times, entrepreneurs may get rejected and even don’t know why. Mark Swanson of Northside Bank in Adairsville has heard this from individuals who have been rejected by banks. Individuals told me that they every time hear no, but don’t know why. Swanson’s bank works to assist individuals to understand credit related inadequacies.

The major reason that Pepperdine University report found is the banks declined a business loan application because of the status of applicant’s cash flow and earnings. Inadequate collateral is also the second most common reason.

Level of earnings can often mean various things to various lenders. However usually getting high-quality income indicates a company’s fiscal reports show stable, consistent and expected revenue that are associated with the main business. In the same way, the level of a company’s revenue identifies whether the revenue produced by the business is mainly driven by nonrecurring resources of cash or by something unconventional, for example slowing obligations to suppliers.

Everett also said that “in case the revenue was much higher this present year, it is just because you had a large profit deal of real estate and that doesn’t count whatever your work is”.

Craig Everett said that “small companies usually encounter difficulties as their revenues are generated by small amount of clients or their revenues look meager. A large number of small companies in fact don’t handle their businesses with the intention of maximizing their revenues because they are minimizing the taxes, therefore they will have lots of operating and other expenses. It also affects their ability to sale the business or to get business loans.”

Normally the banking institutions do not always require collateral security; they usually require collateral security for smaller companies. According to the Pepperdine survey 2014 the banks required collateral 100% on one million loans, however that dropped down to 63% for financing of one million dollars. In the same way, for loans below 5 million dollars, personal guarantees are required as per the survey report.

The lender will have some options for reimbursement of the loan, in case the business does not have adequate collateral. However that makes the deal repellent.

Brain Hamilton of Sageworks reported that some companies get into difficulty borrowing cash when they don’t need the cash. Businesses have to be careful in seeking business loans.

The Capital Market Report 2014 surveyed by Pepperdine University reported that they have no other outside source of financing and also the 37% of companies did not attempt to raise capital in the last year and the companies that did attempt are the most success tapping business and personal credit cards, family and friends, equipment leasing or business credit, 81-94% success rates.