Small business loans can be the difference between a dream coming true and reality. Running a startup can be like trying to see clearly through foggy glass. Even though you move as fast as you possibly can, the future is not clear.
It all depends on how easy it is to secure financing for your startup. But what if a loan application is rejected? Why was your loan declined? We have listed seven common reasons why your loan application was denied for small businesses in this blog post.
You have a poor credit history
A lender will typically deny a loan application if the borrower’s credit score is too low. This could happen if the prospective borrower does not have a current credit account or has too much debt. No matter the reason for the delay, your credit score will play an important role in the approval.
Most lenders will approve you for a loan to your business if there is a proven track record of responsible borrowing. It doesn’t matter if your company has been around only a little while.
Too high debt to income ratio
Your business may not get the funding it needs if you have a high debt-to/income ratio. A bank will assess your income and debt in order to determine whether a small business loan is suitable. A small business loan approval will be easier if you have all of your outstanding debts paid off.
You may find it beneficial to have an asset available in case the business fails. A cosigner can help you with funding and is a great way for you to demonstrate financial responsibility.
You don’t have sufficient collateral
If you don’t possess enough collateral or the proper type of collateral, it may be difficult to get a sjekk dette from a traditional lender. Consider other options such as unsecured loans if you are not eligible for traditional financing.
Many websites offer these types of loans. Lenders that lend to businesses without collateral include venture capitalists, private equity funds, growth companies, and other lenders. You might also reach out to local banks or credit unions that may be willing and able to assist you.
Your business is too risky to be considered by most lenders
Your business might have an explanation for being turned down for loan approval. Lenders can be strict about what they will lend and won’t lend to high-risk businesses. High-risk vice industries, such as restaurants or bars are among them.
Due to the inability to independently assess the risk associated with operating a business, many traditional lenders do not approve sole proprietorships. These risks can be mitigated by a Small Business Administration loan. If you qualify, you might be eligible for a Small Business Administration (SBA) loan.
Inadequate cash flow projection
If you haven’t, we recommend that a cash flow projection be done for several months. By doing this, you can prove to the lender that your business will continue to grow and that you won’t need to rely only on emergencies or sales in the future to cover costs. These concerns can be alleviated by having the paperwork completed in advance.
An excellent rule of thumb before applying for business loans is to ensure that you have at least 2 months worth of operating expenses in your savings account. This ensures that there is enough money available to pay off the loan amount, while still having some breathing room.
Your business’s new
New business owners are likely to have a very low credit score. A solid relationship with vendors will speed up your progress. If you keep doing the same thing, you might be capable of building a strong business credit history within six to one year.