- Like all other loans business loan involves the creation of a debt, which will be repaid with interest and the principal amount.
- There are many types of business loans such as
- Bank loan
- Inventory financing
- Invoice financing
- Business cash advances, and
- Cash flow loans. For a secured loan, it requires collateral, which may be lost if repayments are not made on time. Before applying for a business loan you should consider the factors affecting business loans.
Why business loan application got rejected?
Bad Credit Score
- Many of the loans get rejected because of the bad credit score.
- A good credit score helps you to get the loan easily for both personal as well as business loan financing by avoiding bankruptcy and making payments on time.
Inadequate cash flow from Business
- Inadequate cash flow from the business can become the reason for the rejection of business loan applications.
- Every lender needs to be sure that they are capable of repaying the loan amount.
- The best way to solve any cash flow issues to invoice without delay, instituted late fees, and cut down all the unnecessary fees.
- The lender might not lend the money for the unsecured loan.
- It includes both business and personal assets. Since assets and other things may not have
- The real estate
- Plant and Machinery to offer as collateral.
Lack of Preparation
- Many of the businesses are not aware of the application process they simply walk into a bank, fill out the application, and get approved for a loan but they are not aware of credit score & get bank rejection.
- Applying for a bank loan small business administration you have to write and prepare
- A written business plan
- Financial statement
- Business credit report, and
- Bank statement.
- More debt is one of the main reasons for loan rejection.
- If the organization is already having too much debt from other loans or lines of credit, a lender will be hesitant in giving the new business loan.
- It is always advisable to pay down loans and maintain low balances on any lines of credit.
- If you have low debt and a good credit score there are fewer chances of loan rejection.
Not having the solid business plan
- Many new businesses get loan rejection just because of the improper business plan.
- Without a reliable business plan, an investor won’t consider your loan application to give money.
- To make sure that you have a reliable business plan
- That demonstrates you have conducted good research.
- Projected balance sheet
Outside conditions are too risky
- Many times outside decisions influence the lender’s decision as the impact of that loan gets rejected.
- For example
- If you want to expand the transport delivery service. But there are either rising fuel or carriage charges increases, the lender may have an opinion that giving loan is too risky because those soaring prices make it more difficult for you to turn into a huge profit.
Research your loan provider option
- Technology plays an important role in getting more loan providers options.
- The small businessman must perform due diligence.
- Before taking any loan always ask your prospective loan provider to point you toward the case studies or white papers that give you a good feel for the company name & as well as for its prospective buyers.
Fees & other costs
- If your lender gives only an interest rate and does not disclose any other fees, you will not be able to calculate the average rate of return.
- Before taking any loan ask about prepayment penalties and reach your loan documents carefully before you sign & end of the term