Turned Down: Possible Reasons Behind a Denied Business Loan Application

business loan applicationLaunching a new business requires money. So, even if the road to business success may be tough, some might say that these business people should be thankful that they were able to start or boost their business. Less fortunate would-be entrepreneurs never get the opportunity to even establish a business. Lenders, all too often, reject business loan applicants. The rejection doesn’t even have to be due to a bad business idea but a shortcoming on the applicant’s part instead.

Entrepreneurs who are applying for a business loan should take note of these possible rejection reasons and learn from them.

Poor Credit

While not everyone has excellent credit, having bad credit just isn’t an excuse as far as lenders are concerned. Poor credit is simply an indication that debt repayment is not a priority for the borrower. Even if the applicant unintentionally misses a payment on a car, a piece of property, or a credit card, such lapses speaks volumes to creditors. Additionally, ARF Financial, a trusted business loan financial company, says that having a poor credit score can seriously affect an individual’s reputation and their chances of getting a loan approved in the future.

The good news is that bad credit doesn’t last forever. Individuals can take steps to rebuild their credit by keeping debts low, making timely payments, maintaining existing credit lines, and avoiding opening too many credit accounts.

Insufficient Collateral

Even if the borrower has a good credit score, lenders usually won’t risk lending money without some form of guarantee for reimbursement. Borrowers, unfortunately, face rejection when they don’t have (or present) enough collateral to support the size of the business loan they’d like to borrow.

One solution for this is to create a document that enumerates all possible assets for collateral. The borrower can include both business and personal assets on the list.

Inadequate Cash Flow

Apart from collateral, lenders also want to make sure that the borrower can repay the loan monthly on top of all necessary expenses. Creditors, obviously, won’t accept loan applications from businesses with major cash flow problems. There’s no point in providing a business loan if there’s not enough money coming in, after all. Some of the easiest ways to solve cash flow issues are to cut unnecessary expenses and to have an emergency fund.

Bad credit, inadequate collateral, and insufficient cash flow are just a few reasons behind the rejection of a business loan application. Before submitting any business loan application, borrowers should first do their homework by tackling possible loan application problems in advance.