No one likes to be rejected, no matter the situation. Unfortunately rejection is a part of everyday life. No one feels rejection more than that of the small business owner, especially when they are trying to receive additional financing!
Lenders do not like lending money to small businesses because they are seen to be of high risk. This fact is reflected in the recent results that show only about half of all small businesses were successfully about to secure a loan in 2016. That means that a lot of small businesses were faced with rejection.
Listed below are the top 4 reasons why your small business loan has been rejected. By understand why your loan has been rejected, you can better plan for the future and hopefully ensure the next time you apply you are accepted.
Leaders will often need an asset of the borrowers to act as collateral in case of a default on the loan. The asset that is traditionally thought to be the best collateral is property (may it be your home or investment). Small businesses may not have enough to act as collateral which results in the lenders hesitancy when making their decision. Usually, the greater the value of the collateral, the greater the chance of you getting a loan (as well as the value of loan you need).
No credit or bad credit
This is a major influencing factor and your credit score can have long lasting impacts. Your credit score is a way that lenders are able to measure your overall credit value. When applying for a business loan, the lender is most likely going to look at both your personal and business credit score to assist in their decision. Your credit score is also likely to have some level of impact on the interest rate that will be attached to the loan.
Applying for a business loan certainly isn’t a walk in the part. I find that a lot of businesses underestimate just how much effort goes into the application process. Many businesses therefore do not prepare their application very well. A lack of preparation and the necessary supporting documents will certainly result in a rejection.
Poor cash flow
Lenders will look into your cash flow and other supporting documentation in order to see whether they think you will be able to keep up with the monthly repayments or not. A poor cash flow usually will mean there is a greater chance you won’t be able to make every monthly repayment and eventually default on the loan.