4 reasons why lenders might reject your business loan application

Your business is running short of finances, and a small business loan seems to be an attractive solution. But, upon your application, the bank said no. Well, that’s a bummer, and you really need to give it some thought.

First, let the bank give you the reason for the rejection. You can start pondering from there. Some lenders will be more specific while others will come up with several absurd reasons. Before trying to apply for a business loan with other lenders, you must get everything straight and clear.

lenders business loanIn this post, we’re going to share some of the possible reasons lenders are likely to decline your loan application. Read on to learn more.

1. Being in a risky industry

Traditional lenders, such as banks, have reasons to believe that some industries risky. If your business fall in that category, it could be the single reason you might end up with a rejection. For example, small businesses dealing with alcohol, retail, sexual health, and marijuana, can be quite unattractive to potential lenders.

Restaurants are also another good example because they have a notable track record of failure. According to different experts, the rich run the marijuana industry and they have invested heavily to keep it running. In a such a situation, small businesses in the industry find it hard to compete against them. In this case, such companies may not be viable for business loans.

2. Inadequate cash flow

Many lenders review your cash flow to determine your viability for a small business loan. A good cash flow simply means you’re in a position to pay off your existing loans and the credit you want. Some lenders compare your business to other businesses in your industry to see where it stands. They will need your cash flow report and bank statements to see your financial health.

Also, the cash flow in your industry is also another critical factor worth noting. At some point, it might be a concern in your loan application. Negative expert reviews, predictions, and forecasts can affect your application, especially when you’re looking for a long-term loan. Even if your business is affected by seasons, that can be a red flag, as well.

3. Poor credit score

One of the reasons why your loan application can be turned down is having a poor credit score. In some cases, some business owners don’t even understand their score. In fact, a gap report by Nav’s Small Business American Dream revealed that up to 45 percent of small business owners weren’t aware their businesses had credit score. Also, other owners didn’t know where to find business information regarding credit score.

So, before making your loan application, be sure to check your credit score to determine your likeability to potential lenders. Companies, such as FICO, Equifax, Dun & Bradstreet, and Experian can help with that. Also, work on improving your credit score by keeping your debts low, making timely payments for bills, and avoiding using many lines of credit.

4. Few years in business

In most cases, most startups usually die before hitting even five years. This is one of the reasons lenders tend to avoid approving loan applications from new businesses. You can have a great business idea, but that’s not enough to warrant approval from different lenders. Most lenders want to see your revenue history, track record, and market experience.

However, being a startup doesn’t mean you will completely get a rejection from all loan sources. There are online lenders and small business government loans that can help. You should also consider learning more on to find potential lenders to help you grow your small business.

The takeaway!

Before making any loan applications, take the time to understand some of the reasons why lenders are likely to reject you. Also, watch out for industry trends that might affect your loan application. Some lenders may also need a collateral, so be sure you have something they can use to pay the loan if you default.