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Your Loan Application Could Be Rejected - Here's Why!January 13, 2017
Running your own business is an extremely rewarding endeavor; however, it can be a very difficult one as well. One of the most challenging aspects of being an entrepreneur is securing the funds needed for putting a promising business idea into action. More often than not, applications for credit are rejected - not because of the business plan itself, but due to mistakes on the part of the applicant. Here are some of the top reasons why lenders may turn down a business owner’s request for credit.
Lack of Collateral
In order to safeguard their loans, most lenders expect business owners to put up some kind of collateral. However, many businesses do not have sufficient equipment or real-estate to offer as guarantee, or they may not be willing to use their personal assets for this purpose.
If you have too many unpaid or overdue bills, lenders are likely to look upon you with disfavor. This is because they may think it dangerous to lend money to someone who has trouble meeting his or her existing obligations.
If a business has already borrowed large amounts of money through existing lines of credit or term loans, banks will be wary about extending further credit to the businesses, unless of course they have extra equity or significant cash flow to support additional debt.
Bad Credit or No Credit
Lenders look at a borrower’s personal, as well as business, credit score to make lending decisions. Equifax, Experian and TransUnion are the three main personal credit bureaus, while Equifax, Experian and Dun & Bradstreet are the three major business credit bureaus. Having a low credit score, or no credit history, with any or all of these bureaus can lead to a credit application getting rejected. To learn more about credit scores and how they are calculated, click here.
Inadequate Cash Flow
Banks would like to lend only to those organizations that can make timely loan payments after meeting their rent, payroll, inventory and other costs. Unfortunately, many small businesses don’t have enough monthly cash flow to manage the same.
Some industries, such as the construction industry, are classified as high-risk and generally avoided by lenders. Others may be highly regulated, such as the credit repair industry.
Not Enough Management Experience
Entrepreneurs who want to start a business in an industry that they don’t have much expertise in may not be successful in obtaining credit from lenders. One way in which they can get over this problem is by forming a board of advisors that’s staffed with people who do have the required experience.
Little or No Preparation
Many business owners believe that getting a loan is as easy as walking into a bank and filling up a form. In reality, most lenders want to see a written business plan including financial statements or projections, tax returns and bank statements, and copies of relevant legal documents, such as articles of incorporation, contracts, leases and any licenses and permits that may be needed to operate.
Creditors also tend to reject applications for credit by businesses that are not listed, or that are not in good standing with the Secretary of State. While applying for credit, make sure that your Employer Identification Number (EIN) coincides with your business name, and that you have a dedicated phone line and address for business purposes. Additionally, ensure that the email you provide is not a free service (such as Gmail, Yahoo or AOL). Although these details may seem unimportant, overlooking even a single one of these could lead to your application being turned down.
We hope that you never have to go through the disappointment of having your request for credit denied. Nevertheless, it may happen that despite your earnest attempts, lenders are either unwilling to extend credit, or only consent to do so at very high rates. Through our flagship program, you can get $50,000-$250,000 of Cash Credit at 0%, both for short-term and long-term needs. Call us today at (800) 996-0270 to get a free consultation on how much credit you can expect.