Why Are You Getting Denied & What Steps Can You Take?
Acquiring the proper small business financing, for some, can be tough during the good times and nearly impossible during the cyclical economic downturns our nation experiences from time to time. Some would say that the current times we live in, are beginning to provide prosperity and opportunities to those that seek it. The economy seems to be going on an upward trend, jobs are increasing and businesses are finding working capital to be much more easily accessible.
This however, isn’t the case for all business owners or entrepreneurs. There are still many instances where a willing borrower may not be able to acquire the working capital for their business. Depending on the type of business model you follow, there are alternative options. You can for example leverage other assets. A few of these are:
What if your business model doesn’t allow for these options to be leveraged in order to acquire more cash flow, working capital, capital to purchase a business or purchase commercial real estate through the SBA 504 programs for example?
In this case, you will need to do something about the reasons you were denied the loan in the first place. When all else fails, go back to the drawing board and fix what needs fixing or do it over and do it right the next time. Now let’s highlight some of the reasons a bank could deny you a loan.
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Banks typically deny loans to business owners whose personal credit score is below 620. Some banks have even higher credit-score thresholds. If your loan application is denied for this reason, the bank is required to identify the credit bureau that reported your score, and is required to tell you what your credit score is. You are entitled to obtain a free copy of their credit report. Review the report in detail to ensure there’s no false information in your credit history. Dispute any inaccuracies by letter to the credit bureau, and follow up until the error is corrected.
The bank must be confident of your capacity to repay the loan. If you don’t make enough money or have recently lost a job or changed employers, you will likely be denied a loan. If you are self-employed, you may overcome bankers’ reservations by documenting steady business income. Provide copies of any secured, long-term contracts that can provide reliable loan payments.
Traditional lenders deny personal loans to applicants with excessive debt. If you have recently taken on student loans, a mortgage or a car loan, the business loan may be denied. Paying off debts helps to clear the way for future loans.
Most bankers require you pledge some form of collateral as security for your business loan, to be forfeited if you default. The less collateral you post, the less confidence they have that you will repay the loan. Post recently appraised real estate that has not lost value in recent years.
Time In Business:
Bankers care how long you’ve been in business. If you haven’t been in business long enough to satisfy them, they will reject your loan application. This is sensible when you reflect on the implications of it: the longer you’ve been in business, the more adept and resourceful you are. And length of time in business is also evidence that your business concept is viable. Unfortunately, if you’re new, you’re new. You can’t muster time in business overnight by force of your will. If your banker places decisive weight on time in business, you may have to fund your start-up or young business by unconventional means, such as factoring or group funding.
Regardless of your individual merits, the banker may be unwilling to risk funds under difficult industry conditions, unfavorable legal situations or even climatic conditions. Certain industries are considered poor risks, such as construction and restaurants. If you’re already down two strikes due to your industry, you’ll need to either make the remainder of your packet (credit, income, debt, documentation, collateral and time in business) sparkle to get a bank loan, or consider alternative financing methods that don’t involve banks.
RELATED ARTICLE: Qualifying For Purchase Order Financing
These are some of the top 7 reasons why you could get denied for a loan. The first thing you need to do is to go through this list and make sure none of these were the reasons and if so, begin taking the necessary steps to fix the problem. Get the paperwork copy and a copy of your credit report. Call your creditors and begin taking steps to pay them off. Again, as mentioned earlier, if something was reported incorrectly, write a letter and dispute it.
Maybe You're A Home Owner...
Now for those of you reading, this article is meant to help you focus on the reasons this could happen while looking for a business loan. However, if you are an individual looking for a home loan for the purchase of a property, then it is probably wise to keep in mind that some of these reason do apply to you as well.
For more details on what could get your home loan denied, we recommend this article “How To Avoid Getting Your Home Loan Application Denied”. For Home Buyers, we recommend this article instead.
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