6 Reasons Your Business Loan Was Rejected

Most business owners can’t keep their business running without additional funding. You might need to hire new people, purchase inventory, or expand your number of locations. All of these tasks will require capital. In the days after the 2008 Recession, it has become even harder for small business owners to raise funds. Inexperienced entrepreneurs make a lot of business loan application mistakes, so this article will break down some of the reasons why your loan application got rejected.

1. You Don’t Have Enough Collateral

Traditional lenders require that business owners have acceptable collateral. If the entrepreneur doesn’t have sufficient collateral, their business loan application will likely get rejected. Large companies that have a lot of assets and property can easily get the collateral they need. However, this task becomes much harder for small business owners, who often don’t have nearly the amount of assets that can get used for this purpose.

2. You Have Insufficient Debt-To-Income Ratio

If you have already had debt with other lenders, most traditional lenders will hesitate before giving you additional funding for your business. Many lenders will not even consider your application if you have already received funding from another bank. Unfortunately, many small business owners need to get financing from multiple sources, especially during their startup years. However, receiving funding from multiple sources can act as a strike against a small business owner.

3. You Don’t Have a Healthy Credit History

After the most recent recession, banks have increased their credit requirements. However, a lot of small business owners have credit scores that reflect their troubles during this trying time. These days, most lenders won’t even consider your business loan application if your credit score falls below 720. Many small business owners have learned that they can’t meet that high a standard.

4. You Won’t Personally Guarantee Your Business Loan

Most banks require that business loan applicants personally guarantee their prospective loans. However, asking for a personal guarantee from a business owner that struggles to pay their bills every month is a tough ask. For this reason, many business owners get turned down for loans.

5. You’re Operating In A Troublesome Economy

The vast majority of banks will not lend your business money if they feel that the economic circumstances will prevent them from getting their money back with interest. To get a loan from a traditional lender, you will need to take up the burden of keeping your business costs down and maintaining your current revenues to show that you will honor your financial obligation under any economic condition.

6. Your Business Is Part Of A Weak Industry

A bank primarily concerns itself with getting its money back promptly. If you apply for a business loan and they see that your industry is on the decline, the chances that you will get approved for any funding will decrease considerably. If you find that your business takes part in a weak industry, you might have to consider alternative funding sources.