A business loan can be the difference between success and failure for a small venture. Getting a business loan can mean finding a source of funding to repay debt, to grow the business and to buy assets. A business loan can be key to the growth of your business.
You may have tried getting a business loan but were unable to get any approval. Recently, lenders have placed stringent checks and measures to scrutinize all businesses applying for business loans. You may have been counting on getting that loan to boost your business, but getting the loan is increasingly more difficult. How can you ensure that you are more likely to receive a loan? What can you do to improve your business’s ability to get a loan? Here are some reasons why financial institutions reject loans. It may guide you as you prepare to take on your application.
The biggest deterrent to getting a loan for your business is bad credit. People and businesses with bad credit are more likely to have their applications rejected. Financial institutions judge businesses and business owners by their credit scores, which may work against your business. Before making any application, you need to ensure that your business meets the minimum credit score requirements demanded by a specific financial institution. This will help to get you over the first hurdle.
Your cash flow highlights the business’s ability to pay off its debts. A weak cash flow could signal low returns, or a low market share. Financial institutions will be demanding in this aspect of your business. They need to be assured that your business is capable of handling its debts, which will be consistently required of it for a long time. If you are unable to raise revenues currently, your business loan application will likely be revoked.
Loans to help get your business off its feet do exist. However, they are rare and difficult to access. The loans available for small ventures are not specifically set out to help you start your business. On the contrary, you business should already have made some growth on its own in order to be considered eligible for a loan. Many financial institutions require up to three years of financial paper work before they can sanction any loan. You need to meet these minimum time requirements in order to stand a chance of approval.
Proper planning of your application and research into any outside conditions that may influence the success or failure of your application will help boost your application. You should write up your plan, collect all the necessary financial documentation and create a loan proposal that will detail why you need the loan and how you plan to repay it. Research into factors such as industry trends, local or state ordinances and your business’s competitors will help put you on the forefront with your application. Failure to do so might suggest incompetence or inexperience, both of which are major red flags for your application.