Entrepreneur Resources Your source for small business information
Owning and running a business in today’s time can be both lucrative and frightening. There are many things today that can determine whether a business will succeed or fail. This can sometimes even come down to whether or not you can secure a business loan. Many businesses have to rely on business loans to keep them afloat when times are tough. A lot of business owners will get ahead of themselves and start preparing for an expansion before applying for the loan. If the loan is denied and the business is already in debt for the expansion this could be disastrous. This is why it is important to understand exactly why your business loan can be rejected.
Poor Credit Score
A poor credit score is probably one of the most common reasons for loan rejection. This has to do with the fact that both your personal and business credit score are scrutinized. If you have been in business for a number of years, but your personal credit score is in still in the crapper then there is a good chance that you will be denied for the loan.
Too New To The Industry
Businesses that are new can have extremely hard times securing a loan. This is because they literally haven’t established any credit history at all. Just remember that it is possible to be successful and have solid financial, even if you haven’t been operating very long. You can always start by making sure that your vendors are reporting payments directly to business credit agencies.
Flight Risk
There is simply no denying that some businesses are considered higher risks than others. Just look at the restaurant industry. This industry is considered a highly risky one because they have a high failure rate. Many lenders will also place harsher and stricter regulations on businesses that are backed with a stigma. Just look at the legal cannabis market. These shops can’t even accept checks or credit cards because financial industries do not want to do business with them.
No Collateral
When trying for a business loan there are many lenders that will require collateral. This is not unlike applying for a personal loan. If you do not have the collateral or lack the right type of collateral, you will more than likely get turned down for the loan. If this is the situation that you find yourself in, you should always remember that you have other lending options available.
Poor Debt Utilization
Not only will lenders sometimes require collateral, but they will also require good debt utilization. What exactly does this mean? This means that you are not using more than thirty percent of the total credit available to you. If you are already using too much credit, you will likely be denied.
Not Enough Cash Flow
Lenders are always going to consider cash flow when deciding to lend money. In fact, this is probably one of the very first things that they are going to look at. They need to know that your business is bringing in enough money to pay back what you are borrowing. If your cash flow is spotty or low, you can rest assured that you will likely be denied.
