Have you recently applied for a business loan? Has your loan been denied? Are you wondering what you did wrong? Well, here are the top 10 reasons that your business loan might have been denied.
Is your business bankrupt? Are you bankrupt as the business owner? Well, bankruptcy is an automatic reason for your business loan to be denied. Some lenders might approve the loan if you have filed for bankruptcy protection that has already been discharged but will not approve a loan if the bankruptcy is still ongoing.
2. Tax Liens And Judgments
Do you have any outstanding tax liens and judgments? It’s yet another reason for your loan to be denied. Some lenders might approve your business loan, even with bad credit, especially if there is a payment plan in place.
3. Poor Credit Reports
If you have a poor personal credit score and business credit report, your business loan will be rejected. Even if your loan is approved by lenders who approve loans for people with bad credit, you will end up paying high-interest rates.
4. Industry Risk
A lender might reject your loan because of unacceptable loan purposes. Your business might be in a niche that is not acceptable by the underwriting rules of the lender. Some risky niches include cash businesses, off-shore businesses, pornography, alcohol, cannabis and gambling businesses among many more.
5. Insufficient Operating History
Your business loan will be rejected if your business is still new without a sufficient operating history. Check the loan eligibility rules before applying to ascertain whether or not you are eligible to apply depending on your operating history.
6. Cash Flow
If you have insufficient cash flow, your loan might be rejected. Most lenders have an annual or monthly cash flow acceptable before they can approve a loan. Don’t forget to check the eligibility requirements to confirm whether or not your cash flow will be a problem before applying.
7. Missing Or Incomplete Information
When applying for a business loan, you need to fill out the information accurately and completely. Make sure you provide the relevant supporting documents requested by the lender. The document submissions should be aligned with the requested information. If you haven’t filed your tax returns, you can do so before applying for the business loan.
8. Excessive Debt
Does your business already have excessive debt? Lenders will be hesitant when it comes to approving your business loans. Rather, you can apply for a consolidation loan then use some of the proceeds to pay your debts. It’s an effective strategy especially if the new loan is given at a lower interest rate compared to your current debt.
9. Insufficient Collateral
When applying for a business loan, you need to know the type of collateral the lender will ask for and have it ready. Note that, merchant cash advances and other alternative lenders will rely on future receivables as collateral when applying for a business loan. Do your research on the collateral requirements to make sure that your loan is approved.
10. Structural Reasons
Your business loan might also be denied due to insufficient management team, company size, insufficient personal guarantees, customer concentrations, general economic conditions or weakening industry sector.
What To Do When Your Business Loan Is Denied
After your business loan is denied, you should ask the lender to provide reasons why they denied your loan. That way, you can improve your chances of getting another loan when you reapply. Also, you can seek funding from alternative lenders who might not have stringent requirements like banks. Call Blursoft today to access numerous financial services and solutions to grow your business revenue.