4 Common Reasons Why Business Loans Get Rejected
If you’re a small business just starting out, then you will need to be prepared to face some rejection when seeking financing. Things can get frustrating when you feel that your business is established enough for a loan, but you still can’t get one.
In some cases, this could be because of some miscommunication. But in other cases, it could be due to easily recognizable factors. Only when you’re aware of those will you be able to make the proper corrections and increase your chances. Here are some of the most common reasons why business loans are rejected.
You Went with the Wrong Lender
Going to your local bank may seem like a natural option for many, but in most cases, major banks have very strict criteria when lending to businesses. And, in most cases, these are not the most favorable terms for small businesses.
This is why it’s very important that you look at alternative lenders as well. If you’ve been rejected by more than one banking institution, stop right now as credit inquiries will have an effect on your FICO score.
Alternative lenders like AdvancedPoint Capital, for instance, will look beyond your credit score and look at the actual financials of your business when reviewing your applications. This is why you need to make sure that these are in order, and also work on a real business plan with realistic projections. This will make you even more attractive to lenders and open you up to more options as well.
Not Knowing or Understanding Your Business Credit Score
You’d be surprised at how many small business owners have no idea how their business credit works, or what it is at all. As a matter of fact, one survey found that almost half of all entrepreneurs surveyed had no idea that they had a business credit score. And around 80% stated that they didn’t know how to interpret it.
You can get your business credit score through agencies like FICO, Dun & Bradstreet, Equifax, and Experian.
Little to no Collateral
In many cases, lenders will want to see some kind of collateral to cover the risk. So, if you don’t have anything to show, it will be harder for you. If you do have some physical property, make sure that you draft a collateral document that contains anything of value that could be used to cover for the loan.
Your Reason for Seeking a Loan Makes no Business Sense
In some cases, lenders will reject a loan simply because you don’t have a good reason to apply for one. If you want to get a loan for a superficial reason like redecorating your office or getting your employees the latest and greatest tech tools when they could make do with less, chances are you’ll get turned down. You need to show that you’re seeking a loan that will help foster growth first and foremost if you want to get a chance at financing.
Now that you know why so many loans are rejected, you can actually start on a plan that will put you on the track to accessing financing in the future. But more importantly, make sure that you get informed about your business credit situation, and do what it takes to correct it.