Obtaining capital for your small business may be intimidating, especially if you’re a starter. Below you can find 8 reasons your business loan was rejected.
- Not Being Aware of Credit Score
According to a small business survey conducted by Nav, 45% of the entrepreneurs didn’t know they had a business credit score. 72% weren’t aware how they could get information on their credit score. 8 in 10 small business owners had no idea how they could interpret the score.
- Poor Cash Flow
You won’t get approved if you cannot repay your loan each month. You should have enough cash flow to cover payroll, inventory, rent, and other expenses. If your expenses exceed the amount you earn, cash flow will be another reason for denial.
- Collateral Issues
Limited collateral may serve as another reason for denial. You should include everything you can provide as collateral. List both your personal and business assets such as your home and car as your business may not possess equipment or real estate you can offer as collateral.
- Your Startup Is in Its Early Stages of Development
Lenders are not willing to risk lending money to a business without proven track record, experience in the market, and established revenues. However, this doesn’t mean it’s not possible to get funding for a startup. Consider turning to alternative lenders such as firstamericanmerchant.com. First American Merchant (FAM) is a reputable business loan provider and an award-winning payment processor that specializes in the high risk industry.
If you or your company already has too much debt, lenders are likely to stay away from you. Try to pay down your loans and keep low balances on the credit lines you have.
- Not Having a Solid Business Plan
Prepare a solid business plan so that your loan application won’t be rejected. An updated and well-thought business plan will show you’ve done research in the field and know your potential clients or customers. Don’t forget to include your goals, estimate of sales and projected profit.
- You Don’t Focus on Growing Your Business
Lenders won’t approve you if they see the loan is going to be used for a secondary purchase. They want to see you focus on growing your business so that you could pay them back.
- Risky Conditions
If a lender finds outside conditions, like rising fuel costs, etc., to be too risky, you may not get approved for business funding.
The above-mentioned survey shows that even if small business owners have multiple business funding options available for them nowadays, it can still be challenging for them to get approved. 45% of those who weren’t approved for business funding had been rejected more than once. 23% didn’t know the reason they were denied.