OpenCart Templates
Home / Business Financing / 5 Main Reasons Banks Turn Down Small-Business Owners for Loa…

5 Main Reasons Banks Turn Down Small-Business Owners for Loa…

You were counting on that small business loan to help your business grow, but the bank said “no.” If it makes you feel any better, you’re not alone.

Over the last couple of years, large banks have been reducing the amount of loans that they’re issuing to small businesses. The Wall Street Journal reports that it may be because of, “Weak demand, tighter lending standards and high costs have put a lid on small business borrowing” following the 2008 economic crisis.

However, getting rejected is never fun, even if the circumstances are out of your control. That’s why you should know exactly why your loan was rejected in the first place so that you can make sure that it never happens again.

Sometimes a bank will share these details, but if not, I find that it’s typically for one or more of the following five reasons:

1. Bad credit

Credit history is one of the first things that lenders will review when going over a business loan application. A good credit score proves that the business owner has properly managed both of their personal and business finances by avoiding bankruptcy and making all of their payments on-time.

A poor credit score, however, can make lenders wary since it demonstrates that the individual can not make well-informed financial decisions and are unable to meet the financial obligations that are included in the loan agreement. This is even the number one reason why a payment processor like myself will reject you and your company from even accepting payments.

The good news is that you can repair your low credit score by paying your bills ontime, getting your credit card balances under control (not cancelling your cards) and repairing any mistakes that appear on credit reports. Keep in mind, bad credit on either the business owner or the business can impact the business getting a loan. Here are a few other credit myths I’ve put together that you should know about.

Related: Busting 5 Myths About Small-Business Lending

2. Weak cash flow.

“Banks are very concerned that businesses have enough cash flow to make monthly loan payments in addition to covering their payroll, inventory, rent and other expenses,” says Warren Lee of TheLendingMag Media Group. “Unfortunately, many startups and small businesses struggle to keep enough money in their bank accounts even when they’re profitable, often because they have to pay 3rd-party suppliers upfront before they get paid for their product or service.”

By creating a sticking to a budget, small business owners will have a better idea on how much cash is coming and going through your business operations. If you notice that there is a weak cash flow then you need to cut expenses and find ways to bring-in some extra so that banks won’t reject your application.

Related: Need a Bank Loan for Your Small Business? Timing Can Make or Break Your Chances

3. Time in business and limited collateral.

For new small business owners, obtaining a bank loan may seem like one of the best ways to jump-start your business, or at least get you through your first trying year. Amy Blatterfein points out in an article for Ventury Capital, “Loans for those situations do exist. But, you are not going to find them at your local bank. If you’re looking for a traditional simple interest business loan with a monthly payment you’re going to need to be in business for at least two years.”

You may even have difficulty qualifying for this type of loan until you’ve been operating for at least three years. The reason? Traditional loans require two full years of tax returns to prove consistent gross and net profits. Additionally, small businesses that are just starting out often don’t have the collateral, such as equipment or real estate, required if your business ever defaults on the loan.

You may have to look for alternative sources of funding, such as peer-to-peer lenders, crowdfunding, or online merchants, if you just started your business. As for collateral, you can use personal assists like your home or vehicle.

Related: 3 Startups Offer New ‘Microloan’ Options for Entrepreneurs With Big Ambitions

4. Lack of preparation

“Many businesses simply aren’t savvy about the application process and believe they can walk into a bank, fill out an application and get approved for a loan,” says Mark Palmer, managing director and analyst at BTIG.

Prior to applying for a bank loan, the Small Business Administration suggests that you have a written business plan, financial statements or projections, personal and business credit reports, tax returns, and bank statements. Also included should be copies of legal documents, which include articles of incorporation, contracts, leases, or any licenses and permits that you need for your business to operate.

Related: 3 Strategies for Getting Into Lending Shape

5. Outside conditions

What if you have a solid credit score, strong cash flow, collateral and have prepared everything you need for loan, but are still turned down? It could be no fault of your own. It may just be outside conditions that are out of your control.

“Outside influences are always considered prior to a loan approval or decline,” says Diane Roehrig, president of Alacom Finance. “They can include industry experience (do you have the work background to manage your own business), a business’s location, local or regional economic trends, competitors.”

Furthermore, Roehrig says that there are local, state, and federal ordinances, along with factors like, such as local climate conditions, that could influence an applicant’s approval or denial.

Banks are just more cautious since the 2008 recession, in part because of regulations about lending money to businesses that are considered risks. Unfortunately, this includes small businesses since they don’t have the proven track record of established or larger businesses.

Source link

About admin

Check Also

Elon Musk Has Found a Creative Way to Fundraise for His Newe…

Want to raise $700,000 for your business? Follow Elon Musk‘s lead and sell some hats. ...

Watch: Why Enthusiasm Only Gets You So Far With Investors…

On the new streaming show Entrepreneur Elevator Pitch, founders step into the Entrepreneur Elevator and have just 60 ...

Want to Invest in a Startup? Here's What You Need to Kn…

Fifteen years ago, the funding landscape for startups looked entirely different. Through the development of ...


  1. Great information! Good Post. It is good to see valuable information from a person who obviously has a good grasp of the subject.

  2. After I initially left a comment I appear to have clicked the -Notify me when new comments are added- checkbox and from now on whenever a
    comment is added I receive 4 emails with the exact same comment.

    Is there an easy method you are able to remove me from that service?

  3. I have to show some thanks to this writer for bailing me out of this setting. As a result of checking throughout the world-wide-web and seeing concepts that were not beneficial, I was thinking my life was well over. Being alive without the presence of answers to the problems you’ve resolved through your entire article is a serious case, and ones which could have adversely affected my career if I had not noticed your website. Your own personal ability and kindness in dealing with a lot of things was tremendous. I don’t know what I would have done if I hadn’t come upon such a subject like this. I’m able to at this moment look forward to my future. Thanks so much for your impressive and sensible guide. I won’t hesitate to propose the website to any individual who wants and needs care on this subject.

  4. I and my guys happened to be reading the best information and facts found on your site then all of a sudden I got a terrible suspicion I never expressed respect to the web blog owner for those techniques. Those guys became certainly joyful to study them and already have definitely been making the most of these things. Many thanks for getting indeed helpful and then for making a choice on this kind of magnificent information millions of individuals are really needing to understand about. Our own sincere regret for not saying thanks to you earlier.

  5. Stay with this guys, you’re heniplg a lot of people.

  6. Puh-lease! How can you make a good earworm out of a &q;u&usongtqoot; that has incomprehensible lyrics? The words must be either clear or nonexistent.

  7. My husband and i got absolutely contented Emmanuel could complete his survey through the precious recommendations he made using your blog. It is now and again perplexing to simply find yourself giving for free tips and tricks many others have been selling. We really already know we’ve got the website owner to be grateful to for that. All the explanations you’ve made, the easy web site navigation, the friendships your site aid to promote – it is all incredible, and it’s making our son and the family understand this concept is entertaining, and that is unbelievably mandatory. Many thanks for all the pieces!

  8. I am also writing to let you understand what a perfect discovery our child had browsing the blog. She picked up a lot of things, which include how it is like to have a wonderful giving style to let folks with no trouble thoroughly grasp chosen tricky matters. You truly did more than our own expected results. Thank you for giving the effective, safe, explanatory as well as easy thoughts on the topic to Kate.

  9. Hey! I just wanted to ask if you ever have any issues with hackers?

    My last blog (wordpress) was hacked and I ended up losing months
    of hard work due to no backup. Do you have any solutions
    to protect against hackers?
    Juventus 12 Alex Sandro drakt

  10. Magnificent beat ! I would like to apprentice at the same time as you amend your web site, how could i subscribe for a weblog website?
    The account helped me a appropriate deal. I were
    a little bit acquainted of this your broadcast offered vivid transparent idea
    Real Madrid Sergio Ramos Hemmadräkt

  11. Hello this is kinda of off topic but I was wanting to know if blogs use
    WYSIWYG editors or if you have to manually code with HTML.
    I’m starting a blog soon but have no coding knowledge so I wanted
    to get guidance from someone with experience.
    Any help would be greatly appreciated!
    Juventus 19 Leonardo Bonucci drakt

  12. The subsequent time I learn a blog, I hope that it doesnt disappoint me as a lot as this one. I mean, I do know it was my choice to learn, however I truly thought youd have something fascinating to say. All I hear is a bunch of whining about something that you could fix if you happen to werent too busy on the lookout for attention.

  13. Hello! This is my first visit to your blog! We are a group of volunteers and starting a new project in a community in the same niche. Your blog provided us valuable information to work on. You have done a wonderful job!

  14. I not to mention my guys appeared to be checking out the good information from your web page then all of a sudden I got a horrible suspicion I never expressed respect to the web site owner for those secrets. All of the young men became passionate to read all of them and have now simply been having fun with them. Thank you for truly being very considerate and also for settling on these kinds of impressive useful guides millions of individuals are really needing to discover. My very own honest regret for not expressing appreciation to earlier.

Leave a Reply

Your email address will not be published. Required fields are marked *