BIGtheme.net http://bigtheme.net/ecommerce/opencart OpenCart Templates
Home / Business Financing / The Number One Reason Banks Deny Loans to Many Small Busines…

The Number One Reason Banks Deny Loans to Many Small Busines…

Reader Resource

Join Entrepreneur’s The Goal Standard Challenge and make 2017 yours.
Learn more »

The following excerpt is from the staff of Entrepreneur Media’s book Finance Your Business. Buy it now from Amazon | Barnes & Noble | iTunes

No one ever promised that the challenges to growing a small business would be minor. Entrepreneurs regularly confront issues that can threaten the very core of their companies, not the least of which is difficulty securing the financing they need to run and grow a sustainable business.

Finding capital is becoming harder for a significant proportion of small businesses, despite the wider variety of financing options available. Even though there are more lending alternatives for small businesses than ever before, a crucial step is missing and no one is paying attention, leaving business owners increasingly frustrated over their rejections for credit lines and loans.

The dream and the reality don’t add up — a scenario confirmed by a 2015 Nav survey of 250 small and midsize business owners, which brings to light the struggle around bank financing, small-business loans, and the rejections small businesses suffer.

The realities small businesses face

The Small Business American Dream Gap Report found that despite the positive outlook for small businesses, nearly three out of ten small businesses reported finding it harder than in the past to reduce operating costs. Nearly a quarter of small businesses, meanwhile, found it harder to plan for unforeseen expenses. Within the previous year, the survey revealed, 20 percent of the small businesses surveyed said they had considered shutting down, primarily because of lack of growth or cash-flow issues.

Those kinds of struggles had led 53 percent of those small businesses to apply for funding or credit lines over the past five years — and one in four said they had sought loans multiple times. Yet 20 percent of those applying over the past 60 months reported being turned down, and 45 percent of those denied said they’d been rejected more than once. The most frustrating finding was that nearly a fourth — 23 percent — of these businesses didn’t know why they’d been denied.

As a result, 26 percent of these business owners avoided hiring and expansion because they were frustrated with trying to access funds. Instead, they ponied up the money from their personal savings and used their credit cards to cover expenses and keep their businesses going, putting them at substantial risk.

In addition, the study determined that the last time the owners surveyed had needed funds, 62 percent had withdrawn personal savings, 22 percent had used business credit cards, 24 percent had used their personal credit cards and 10 percent had relied on family and friends. Only 36 percent of those seeking funds had obtained bank loans.

Your business credit score is the crucial missing link

The study revealed that a primary reason small businesses can’t obtain bank loans is their failure to understand their business credit score. Some 45 percent of entrepreneurs surveyed didn’t even know they had a business credit score, and 72 percent didn’t know where to find information about it. Even when they did, more than eight in ten small-business owners surveyed acknowledged that they didn’t know how to interpret their score.

Education and empowerment around creditworthiness is a core issue that can make or break a small business’s ability to get financing. Many business owners starting out are unaware of business credit and may do significant damage to their credit without realizing it — primarily by maxing-out personal credit cards and/or credit lines because they believe they have no other choice. This short-term approach can lead to significant long-term damage.

Need more information about business credit? Consider the FICO score. Just as every individual consumer has one based on his or her personal credit record, every business has one developed by the FICO LiquidCredit Small Business Scoring Service — the FICO SBSS score. Banks use this score to evaluate term loans and lines of credit up to $1 million.

The score further rank-orders small businesses by their likelihood of making on-time payments based on their personal and business credit history, along with other financial data. On a scale of 0 to 300, a small business must score at least 140 to pass the pre-screening process the SBA uses for its most popular loan — the 7(a) loan.

If a business with a poor credit history — or none at all — is denied financing, lenders are not required to notify the owner of the reason for the rejection. It’s crucial, therefore, for business owners to learn about their SBSS score and build credit with timely payments to vendors and suppliers to keep that score up. Boosting their score may take years for companies with a poor or nonexistent credit history, so the process of strengthening creditworthiness needs to begin long before they submit a credit application.

A number of business credit bureaus will generate a business credit score, including Dun & Bradstreet, Equifax, Experian and FICO. Anyone can request a business credit report from Dun & Bradstreet, Equifax or Experian, but it comes at a price. Nav offers a free service that provides access to summary reports from Dun & Bradstreet and Experian, a personal TransUnion report and alerts associated with any changes to business or personal credit.

Until recently, there was no direct way to access your FICO SBSS score, but small businesses can now get that number through Nav’s subscription service. It’s the only place small businesses can get that score online.

Why this all matters

Ultimately, those who understand business credit are better positioned to succeed. The Nav study found that nearly 40 percent of small-business owners who didn’t know their business credit score anticipated growth of less than 5 percent, while the nearly three-quarters who did know it envisioned growth of up to 20 percent.

Another answer to the perplexity surrounding rejected funding came from a revelation in the study about owners’ understanding of credit issues. The small-business owners surveyed who understood their business credit scores, the study reported, were 41 percent more likely to be approved for a business loan than those who did not. And they were 31 percent more likely to consider expanding their businesses.

Some 80 percent of those in the know about their scores, moreover, considered their funding process to have been smooth, and half of those owners indicated they were less likely to turn to personal savings to grow their companies.

Business owners, then, should determine where they stand and take control of the factors critical to the lenders, credit card companies and even other businesses they work with. When owners understand their scores, they have an easier loan approval experience and are empowered to grow and thrive and help the overall economy thrive as well. That way, everyone wins.


Source link

About admin

Check Also

Everything Small Business Owners Need to Know About the 401(…

In a world where compensation and benefits are the No. 1 way to attract and ...

Groupon Co-Founder's New Healthcare Startup Raises $70 …

Co-founder of Groupon Eric Lefkosky’s new healthcare startup, Tempus, has raised $70 million in series C ...

Need Retirement Money? Selling Your Company Can Help. But Fi…

Small-business owners frequently finance their retirement by selling their companies. That’s fine, but many haven’t stopped ...

12 comments

  1. Very shortly this web page will be famous among all blogging users, due to it’s good
    articles or reviews

  2. I wish to point out my affection for your kind-heartedness in support of men who really need help with this one niche. Your special dedication to passing the solution all-around ended up being especially beneficial and have specifically allowed workers just like me to attain their endeavors. The informative tips and hints means a lot to me and especially to my peers. With thanks; from everyone of us.

  3. Time to face the music armed with this great intormafion.

  4. Was totally stuck until I read this, now back up and ruinnng.

  5. whoah this blog is wonderful i like reading your articles.
    Keep up the great work! You realize, many individuals are hunting around for this information, you could aid them greatly.

    fotbollströjor

  6. Heya superb blog! Does running a blog similar to this take a lot of
    work? I’ve no knowledge of programming but I was hoping to start my own blog soon. Anyways,
    should you have any ideas or techniques for new blog owners please share.
    I understand this is off topic however I just wanted to ask.
    Appreciate it!
    Juventus Pogba borta fotbollströjor

  7. These are truly enormous ideas in regarding blogging.
    You have touched some fastidious things here. Any way keep up wrinting.

    Liverpool 66 Trent Alexander-Arnold drakt

  8. Hi there! Quick question that’s entirely off topic. Do you know how
    to make your site mobile friendly? My web site looks weird when browsing from my apple
    iphone. I’m trying to find a theme or plugin that might be able to resolve
    this issue. If you have any recommendations, please share.
    Thank you!
    Juventus fotbollströjor

  9. Hello to every , because I am genuinely eager of reading this
    webpage’s post to be updated on a regular basis. It includes nice information.
    Arsenal 31 Jeff Reine-Adelaide drakt

  10. Hi there, i read your blog occasionally and i own a similar
    one and i was just wondering if you get a lot of spam responses?
    If so how do you protect against it, any plugin or
    anything you can recommend? I get so much lately it’s driving me insane so any help is very much
    appreciated.
    maglietta napoli

  11. I enjoy you because of all of the hard work on this web page. My mum really loves setting aside time for internet research and it’s easy to understand why. A number of us hear all about the compelling mode you convey great guidance through your blog and attract contribution from website visitors on this matter plus our princess has been studying a great deal. Have fun with the rest of the new year. You are performing a brilliant job.

  12. I must express my thanks to this writer just for rescuing me from such a problem. Because of exploring through the online world and obtaining opinions which are not pleasant, I figured my life was well over. Existing without the strategies to the problems you’ve sorted out all through this blog post is a serious case, and the kind that would have in a wrong way affected my entire career if I hadn’t come across your blog post. Your personal understanding and kindness in playing with all the pieces was important. I don’t know what I would have done if I hadn’t come upon such a solution like this. I can also now look ahead to my future. Thank you so much for your impressive and sensible help. I will not be reluctant to recommend your blog post to anybody who would need direction on this situation.

Leave a Reply

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