Why Was Your Small Business Loan Rejected?
Most small business owners have, at one point or another, considered applying for a small business loan of one kind or another. In fact, a large percentage of entrepreneurs have already applied for a business loan. While some may have gotten the money that they asked for, others simply didn’t make the cut. Did you ever wonder what could make a lender say no? We did some digging and found out…
Credit Score Is A Common Reason
One of the more common reasons that people don’t get approved for business loans is because they do not have a credit score that suggests that they would pay it back. When they look at a small business loan application, they don’t only look at the business’s credit score. They also look at the credit scores of the owners. Unfortunately, for many, that may mean a rejection is expected.
Collateral Is A Common Cause Of Business Loan Rejection
We sadly live in an age where most banks will require some form of collateral before they sign you off with a loan. For new business owners, this often means that they are put in a position where they have to choose between signing their own house as collateral, or not getting a loan. In some cases, collateral involves price depreciation, which in turn can make getting a loan for the full amount even more difficult.
Your Application Wasn’t Fully Filled Out
Many businesses don’t realize how much capital they have, or how much collateral they have. A good business loan application can require a certain amount of preparation and time before it’s filled out. This can at times result in a rejection.
Your Business Didn’t Have Enough Cash Flow
For many business owners, this is the ultimate Catch-22. They want to get a business loan so that they can make enough money to turn a good profit. The bank sees that business is sluggish, so they reject them, citing bad cash flow as a reason why. If the reason why you need money is to drum up business, then you’re going to need to look in places that aren’t banks for help.
The Amount You Asked For Is Too Small
It costs a bank the same amount of money to issue out a loan for $50,000 as it does a loan for $300,000. However, that doesn’t mean that banks automatically will make the same amount of profit from both loans. Banks will always look out for their best interest, and when it comes to loan issuances, the bigger loans will always be more profitable. As a result, bankers might not want to go through all the work of issuing out a smaller loan. Call it lazy, call it unfair, but that’s the way the world works.
The Bank Thinks Your Industry Is Risky
Some industries just scream “RISK!” Industries involving night clubs, firearms, or even online gambling all can be considered to be risky by bankers. If you’re at risk of a sudden shutdown, or at a high risk of a lawsuit, your chances of getting a loan can be hit.
The Bank Thinks Your Company Is Risky
Since the mid 2000s, banks haven’t been as open to risk as they used to be, which means that they will not lend to businesses that could be considered risky. More often than not, this means that they won’t lend to new businesses at all.
What To Do If Your Small Business Loan Application Was Denied
If you have applied for a small business loan with a bank, only to find out that your loan application was denied, it can be hard to take. You might feel slighted or even downright hurt. However, you really only have two options that you can consider when it comes to getting business funding: you can either work to make yourself a more attractive lender for banks, or you can look for alternative lending sources.
Alternative lenders will likely approve businesses that banks won’t, and often will do so with much less hassle involved. Therefore, we will typically suggest looking at alternate routes if you have been rejected multiple times by a bank.