5 Reasons Your Business Loan Application May Have Been Rejected

As business owners and entrepreneurs, they'd find themselves in one way or another in need of funding to either start or support their business affairs. They have multiple options to find this needed financial assistance. A lot of business owners turn to business loans.

Small Businesses Have Been Turned Down Financing

However, a lot of small businesses have been turned down for financing for various reasons, and as many as 70 percent to 90 percent. If you're turned down for a loan, that does not mean that you don’t still need financing for your business. Let’s discuss some reasons you may have been rejected and how to increase your odds next time.

Reasons Why You Were Turned Down And How To Increase Odds

1. You just started your business.

For most startup companies, it can be difficult to find lenders that are open to finance your business despite the lesser time you have in the industry. During a business's pioneering stages, revenues can come slow and needs a lot of support to keep the business afloat.

Things You Can Do:

Lenders would turn to other factors to guarantee credit-worthiness- and that is collateral and a high personal credit score. Make sure to keep your credit rating up-to-date and clean.

2. You have a low personal credit score.

As one of the major factors banks and lenders look at to guarantee your credit-worthiness, it can be difficult to secure a loan with a bad personal credit score. Some lenders would consider lower credit scores given you are able to provide another source of metrics.

Things You Can Do:

Make improvements if your personal credit score is struggling. Find out where your credit score is first. You can check out the three main personal credit bureaus: Experian, Equifax, and Transunion, which offer credit monitoring services.

3. You don’t have strong recurring monthly revenues.

Lenders would like to validate first that you are able to make timely and regular payments- and this is usually seen in your monthly revenues. If you just started your business or your monthly revenues are irregular, it can be hard to get approved for a loan even with a great personal credit score.

Things You Can Do:

Start smaller to build your monthly revenues first. Maintain a good personal credit score. It takes time, from a year or two, before you can get financing.

4. You defaulted on a previous loan for your business.

Loan default occurs when a borrower fails to pay back a loan according to the initial terms. Defaulting on a loan will drastically reduce your credit score and affect your capacity to seek and receive credit or funding in the future.

Things You Can Do:

You have to fix the damage the defaulted loan did to your credit score by building it again. If possible, look to arrange and negotiate a repayment plan with your lender. Most of the institutions will assist the borrowers and guide them on how to manage the current situation. During a business consultation with your lender, inform them of your defaulted loan and ask which factors or requirements you need to submit to improve your creditworthiness.

5. Your industry is restricted to that lender.

Some banks or lenders just don't work with particular industries for various company terms. If your application was rejected for that reason, there's really not much you can do. Finding a lender who works with your business's industry can be more challenging.

Things You Can Do:

Try to explore your options and take advantage of the easy and accessible communication you have with the lenders in your area. Don't stop trying. With enough hard work and determination, you will be able to find terms that are agreeable to you.

3 Main Things Want To Know When Reviewing Your Application

One of the most effective reasons to improve your chances of approval is to find out why your application was turned down. Take notes on what you need to improve, if possible. Furthermore, you are able to target those specific reasons when you are given a chance to convince the loan officer that your business is less risky than others.

Banks or lenders, there are 3 main questions that they want to be answered by business owners:

• Can you repay the loan?

• Will you repay the loan?

• What will happen if you default on the loan?

What Does This Mean For You?

Therefore, try to focus on the things you need in your business to increase the odds of getting financing. If you can confidently answer "Yes" to the three questions above, you are likely able to find a lender who is willing to work with you.

If not, don't worry! Try to improve what you have in the meantime. Remember, your hard work will pay off as long as you keep on trying and stay determined! To get a free business consultation, feel free to contact us at Lendhalo! We're here to help you with your business funding needs.

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