So many businesses fail because they run out of enough finances. What if you applied for a business loan, but you got rejected? Below, you can find the main reasons for this so that you can start working on improving the situation.
Reasons Why Your Business Loan Was Rejected
Non-bank lenders have approved more applicants in recent months than banks, according to the latest Biz2Credit Small Business Lending Index. Small business owners have more chances to get approved for a loan from an alternative lender than from a bank.
Reputable alternative online lenders like FirstAmericanMerchant.com specialize in the high-risk field and work with high-risk and low-risk merchants. So, if you need quick access to a business loan, consider working with FAM, an award-winning business funding provider and payment processor. The offered rates are among the lowest.
1. Poor Business and Personal Credit Scores
Lenders look at not only your business credit score but also on personal credit score. These scores tell lenders whether you can pay back debts on time or not. So, the higher your score, the more chances you have for approval. Generally, lenders will want to see a FICO score of at least 680 to approve you.
However, high-risk lenders are more interested in whether you have sufficient funds or not instead of focusing mainly on your credit score.
The most famous FICO scores are the following:
- 580 to 669 are considered fair
- 670 to 739 good
- 740 to 799 very good
800 and above excellent.
2. New Business
If you’re a first-time entrepreneur, your business will look less creditworthy in the eyes of many lenders. So, if you haven’t had enough time to build a good credit history, traditional loan providers will shy away from you.
3. Insufficient Cash Flow
If lenders carry out an analysis of your cash flow and see you lack enough financial resources to repay the loan, they’ll reject you. Happily, you can work on improving your cash flow by cutting unnecessary expenses, maintaining proper invoicing, and setting aside an emergency fund.
4. Business Plan
A good business plan is your business roadmap. To determine your eligibility, the lender will look at your business plan to understand how you’re planning to grow your business, why you need financing, business-related costs and revenue, and planned strategies. So, a robust business plan will increase your chances of approval.
4 Reasons Why You Weren’t Approved for Business Funding
A lack of working capital can hold you back from starting your business or moving it to the next level. There is more than one reason why business loans are rejected. The good news is that there are high-risk lenders that can approve you more quickly and hassle-free.