Before lending, banks need to know that a business has the ability to repay the loan amount instead of going bankrupt. The approval of business loan application is based on certain key factors which need to be considered before applying. In case your business loan was not approved, it may be due to the certain reasons:
Inappropriate Strategic Business Plan
Bad Credit History
Based on recent study, traditional lenders realize that most start ups fall within their two-year tenure. To make certain that they would not lose money because of business failure, they usually decline to provide loans to businesses that have under two-year existence. Banks ascertain the business age by tax returns and not with the date that was filed at the time of business set up.
Inappropriate Strategic Business Plan:
Your business strategic plan confirms the lender that you have a solid business objective for requesting a business loan with a solid reimbursement plan. So, if the lender realizes that your strategic business plan is rational and suitable, they will be more inclined to approve your business loan application. An inappropriate or unclear strategic business plan can sink in a good loan application.
You need to submit a strategic business plan with your loan application even you have started operating your business without a solid plan.
Business Bad Credit History:
It usually requires a very prolonged time for your business’s credit to turn out to be fully separated from your personal credit. Creating separate business bank accounts and applying for Data Universal Numbering System (DUNS) will assist you in making that separation, however, regardless of how well your business is running, in case your personal finances are inadequate, it will have an adverse impact on your business finances.
Repay what you owe promptly, reduce your high credit amounts and avoid than you can afford. It will take a year or more to improve your credit score, so improve it before you apply for a business loan.
Inadequate Business Assets
Inadequate asset is also one of the major concerns that may cause rejection of your business loan application.
Addressing issues with measures like cash to assets, debt coverage ratio, net income to sales, liabilities to assets can help your business not only to qualify but additionally make it more lucrative in the long run.
At times, regardless how good your loan application is, the lender will reject it based on external aspects that are out of your control. The economic downturns have made lenders tighten their lending criteria. Circumstances within your particular industry can also affect your odds of getting a business loan.
You will find numerous explanations why your business loan application wasn’t approved. It is wiser to review your loan application with an expert to acknowledge the feeble points in your loan application before applying. This way, you can improve your odds of getting quick approval for a business loan.