The business loan is a loan specifically intended for the business purposes. Like all other loans, it involves the creation of debt, which will be repaid with interest & the principal amount. There are many types of loans, including bank loan, inventory financing, invoice financing, microloans, business cash advances & cash flow loans. For a secured loan, it requires collateral, which may be lost if repayments are not made on time.
Reasons for small business loan rejection
Bad credit – Many of loan rejection is done because of the bad credit. Bad credit history is the one & the first things that lender will review & many of the loans get rejected when going over a business loan proposal or application. A good credit score helps you to get the loan easily for both personal as well as business loan financing by avoiding the bankruptcy & making payments the payments on time.
Inadequate cash flow from Business – Loan rejection is done because of the inadequate cash flow from the business that is the reason every lender also want to make sure that are you capable of repayment of a loan or not. The best way to solve any cash flow issues to invoice without delay, instituted late fees & cut down all the unnecessary fees.
Limited collateral – Lender is not willing to risk lending money to the business with any some sort of the repayment. In other words, every lender wants some physical property that they can take if a loan is not repaid on time. It includes both business & personal assets since assets & other things may not have the real estate or plant & 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 & get approved for a loan but they are not aware of credit score & get bank rejection. Applying for a bank loan small business administration suggest that you have to write a written business plan, financial statement, business credit report & bank statement.
Too much debt – More debt is one of the main reason for loan rejection. If the organization is already having too much debt from other loan or lines of credit, a lender will be hesitant in giving the new business loan. It is always advisable to pay down loans & maintain low balances on any lines of credit. If you have low debt & good credit score there are less chances of loan rejection.
Not having solid business plan – Many of new business get loan rejection just because of the improper business plan. Without the solid business plan, an investor won’t consider your loan application to give money. To make sure that you have a solid business plan that demonstrates you have conducted good research as well as projected balance sheet proves that you know your buyer & had a clear mission statement for your business.
Outside conditions are too risky – Many times outside decision influence the lender’s decision as the impact of that loan gets rejected. Let us understand with the help of an 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 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. It is very crucial for the small businessman to 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 provider gives only an interest rate & not disclosing any other fees, you are not able to calculate the average rate of return & helps to understand whether the loan is a good deal or not. Before taking any loan ask about prepayment penalties & reach your loan documents carefully before you sign & end of the term