8 Things That Keep You From Getting Approved for a Business Loan
Getting a loan is one of the best ways to help finance whatever your needs are. For instance, if you want to buy a home or a car you will most likely need to apply for a mortgage or car loan to help you finance your goal.
Similarly, starting or running a business will sometimes need the help of loans. However, entrepreneurs and small business owners who apply for small business (SBA) loans aren’t always met with success. Getting a small business loan approved is laden with challenges.
If you’re a business owner or entrepreneur looking to apply for a loan, you need to identify what the challenges are so that you can prepare for them. Here are the most common reasons small business loans get rejected off the bat:
- Your credit history is bad.
Your credit history plays a very important role in the approval process of a business loan. It tells lenders what they need to know about your creditworthiness and if you’re worth taking a chance on. A bad credit report, no matter how nice a person you are, will most likely get your application rejected. So if you want to snag a business loan, you need to bring your credit score up.
- Your cash flow is quite limited.
When we say cash flow, it’s basically just a measure of how much money you have on hand to make your loan payments. It is the first thing that lenders look at to gauge how healthy your business is. For instance, if your business has an unsteady flow of income and overwhelming expenses, this will prove to be problematic when applying for a loan.
Before considering taking a loan, take a look at your cash flow and see if you can make prompt payments. If you’re unsure of your financial situation, talk to a financial planner to see what your best course of action should be.
- You have no solid business plan.
Starting a business doesn’t happen by accident. Even if it was launched with very little prep time, a wise business owner or entrepreneur will create a business plan. It will indicate what the goals are, its business model, how it will operate, and other important aspects of running a business.
Most lenders are more likely to approve a small business loan application if they see that you have mapped out a good solid strategy. Spontaneity is not really an attractive characteristic in the world of business.
- You applied for one too many loans simultaneously.
If you think that you’ll get a better chance of acquiring a loan by applying to every lender in your area, think again. It might seem wise to have a wide range of options to choose from but opening that many loan application forms will raise eyebrows from credit bureaus and raise a red flag.
- You didn’t shop around.
On the other hand, not having enough options might leave you disappointed and discouraged. While it is not recommended that you go to every lender, you need to have a handful of options. Pinning all your hopes on only one lender is not the wisest thing to do. Set aside time to look up options that can provide traditional and alternative loan companies that suit your business best.
- You are very disorganized.
Applying for a loan is not something you should take lightly. It is to be taken seriously because your business is on the line. If you’re really serious about applying for a loan and want it to be approved, you need to come in organized with all the proper documents in order. Do your research about the required paperworkto increase your chances of approval.
- You did not seek advice from experts.
While doing extensive research can help you prepare all the requirements and anticipate what could go wrong, you get brownie points with lenders if they know that you sought counsel from people who have extensive knowledge and experience about your line of business. It would also be wise to take to a financial expert and see how to best go about acquiring additional capital.
- You show no excitement or faith in your venture.
Exerting all of your energy on the technical and methodical aspects of acquiring loans is great but don’t forget that there’s also an emotional aspect to it. Plenty of business owners fail to show how passionate they are about their endeavor and defend why they are deserving of that loan they’re applying for. Lenders need to see that you believe in your product and are excited about the good it can do for the community.
Since financing plays a big role in any business, business owners should be able to identify the different options available to them, the possible challenges, and the potential solutions to acquire funding.