Banks Have a Lot of Reasons to Reject Your Small Business Loan

For a small business to grow into a big business, it needs a loan unless it has exceptional sales and profit margins. A small business owner has quite a few places where he/she can go with a loan request. Banks seem to be one of their options on most occasions. What these owners might not realize is that banks have recently developed a reputation for rejecting small business loans. It seems that banks are more interested in financing large businesses due to their benefits. A bank can come up with a variety of reasons to reject loan approval for a small business. Some of the common reasons are as under:

Reasons for Banks to Reject Your Small Business Loan

Credit History

One of the barriers between you and the business loan is credit history. When you go to a bank, they look at your personal as well as business credit reports. Some people are under the impression that their personal credit does not affect their business loans. But that’s not always the case. A majority of banks look into both the types of credits. One of the aspects of credit that matter a lot to the banks is credit history. The length of your credit history can affect your loan approval negatively or positively.

The more information banks have at hand to assess your business’ creditworthiness, the easier it is for them to forward you the loan. However, if your business is new and your credit history is short, banks will be unwilling to forward you the desired loan.

Risky Business

You must be aware of the term high-risk business. In fact, lending institutions have created an entire industry for high-risk businesses to help them with loans, credit card payments, etc. A bank can look at a lot of factors to evaluate your business as a high-risk business. Perhaps you belong to an industry that is high-risk per se. Examples of such businesses are companies selling marijuana-based products, online gambling platforms, and casinos, dating services, blockchain-based services, etc. It is imperative to understand that your business’ activities can also make it a high-risk business.

For example, your business might not be a high-risk business per se, but perhaps you have received too many charge-backs on your shipped orders from your customers. In that case, the bank will see you as a risky investment and might eventually reject your loan application.

Cash Flow

As stated earlier, your credit history matters a lot when a bank is to approve your loan request. While having a short credit history increases your chances of rejection, a long credit history isn’t always a savior too. Any financial incidents on your credit history that do not favor your business can force the bank to reject your application. One of the most important considerations is the cash flow of your business. When you have cash flow issues, you are at risk of receiving a “no” from the bank for your loan.

Your cash flow is a measure for the bank to know how easily you return the loan. If you are tight on cash flow, how will you manage the repayments? However, cash flow is one of the controllable factors for you. Find ways to increase your revenues and lower your expenses. Once you have the right balance, you can approach the bank for a loan.

The Debt

A mistake that small business owners often make is trying out too many places for loans. They will avoid going to the bank first but get loans from several other sources in the meantime. Once you have obtained your business funding from other sources, it makes sense to return it in time. Approaching the bank when you already have a lot of debt to pay is not advisable at all. Do keep in mind that the debt you or your business owes affects your credit score as well. In short, the bank does not even have to investigate to know your debt. An overview of your credit report can tell the story.

The Preparation

Sometimes, your business is doing fine, and your credit score is in good shape as well. However, what’s missing is a solid business plan and proper preparation for loan approval. If you haven’t already figured out, banks require you to present a lot of documents with your loan approval request. Here are only some of the documents you will have to present to the bank to get approval for your loan.

Income tax returns
Existing loan documents
Personal financial documents
Affiliations and ownership
Business lease documents
Financial statements of the business
You have to be exceptionally careful when these documents and presenting them to the bank. Any discrepancies can result in loan rejection.

Concentration of Customers

This one might come as a surprise to some, but a lot of banks consider this aspect of your business seriously. You must not forget that loans are banks’ investments. Businesses that approach the banks are their vehicles to multiply their money in the form of interest. If the bank senses that your business does not have the potential to expand, it can reject your loan request. Think of a mom and pop shop in a small town with a small population. If it only serves the people of that town and has no potential to grow further, a rejection is imminent.

In this particular case, even if the business has considerable profit margins, it relies on its regular customers for that. The bank might see it as a returnable loan but not as an investment opportunity.

Conclusion

The good news is that you have a lot of funding options as a small business owner. Today, banks are only one of the many options for you to fund your bank. You don’t necessarily have to apply for loans when you have crowdfunding platforms actively helping small business with their funding needs. If you are seeking a business loan from a bank, that’s fine. However, if the bank does not approve your request, it should not worry you much.

Get Business Cash Advance Loans Immediately

Getting a business cash advance is simple and easy for most small businesses, and even those who have poor credit scores. While this does not apply to bank loans, these are the requirements of private lenders, and private lenders are amongst the leading funders at this time.

Most business owners who are looking for funding and are unaware of the current requirements and developments of the financial sector, visit their local bank. This is the way people believe a loan is to be obtained, via the bank. However, banks are not very enthusiastic about funding small business, and as a result a whole new industry has cropped up to meet the demand.

Private lenders often fill the gap between businesses and banks. There is the very large segment of small businesses that are stuck in the middle, who don’t qualify for bank loans and yet require financing. Private lenders fill this gap providing many of them with the much required business cash advance in the USA.

The services provided by private lenders

The funding that private lenders provide is typically known as MCA or merchant cash advance loans. These kinds of loans are short term loans that are for a maximum duration of 12 months. The repayment options are easy and flexible, and small business owners can work with the funder to set the method that most suits their requirements.

The application process to apply for a business cash advance is simple and quick, with the private funder generally requiring basic information, and a lot less than those of banks. The basic information required by private lenders to provide an MCA are as mentioned here.

1. How old the business is

2. The gross monthly sale of the business

3. How much they require

4. Purpose of the funds i.e. working capital, business expansion, purchasing inventory, purchasing equipment etc.

5. If the business owner has other loans and if he or she is in bankruptcy.

These are some of the basic types of questions that a small business owner who is applying for an MCA would need to answer. The outstanding difference between an application for an MCA and bank loans is the fact that banks require detailed information related to financial statements. Private lenders basically need a broad picture of the ground realities of the business applying for the loan. Unlike banks all decisions are not based on the statements of the small business.

While banks and private lenders may have a different way of looking at things, private lenders do take care to ensure the ground realities of the small business are as they should be. Banks rely heavily on financial statements when reaching a conclusion related to funding a business.

Features of the MCA loan application process

While it is possible that you will be asked about your credit score even when you are going to apply for private funding. The credit score is not a determining factor for an MCA. These loans are unsecured loans and as a result collateral and security are not required as well.

When credit scores, collateral and securities are not holding back small businesses, the possibility of getting funded is a lot higher. These are the basic weak areas of most small businesses, which hamper their ability to get funded by in large. When these weak areas are removed from between a small business owner and the funding they seek, the process becomes a lot smoother for them.

Collateral is something that most small business owners find difficult to show. Typically, only with a private lender can a small business owner expect to receive a business cash advance with bad credit.

Another great feature is the fact that small business owners can receive the funding they require very quickly as well. The quickest a business owner can receive the money in their business account is 48 to 72 hours, from the time they submit a complete application. At the latest this time frame would be a week or two. Banks on the other hand are in no particular hurry to provide business funding, and a realistic time frame would be a couple of months to receive the money.

Fifteen 15-Minute Business Building Activities

The heart of growing a financially successful business is doing those activities that will bring you and your business immediate and/or future income. Here is a list of fifteen 15-minute business-building activities that will have you smiling all the way to the bank.

1. Prioritize your day the night before or first thing in the morning. Based on your priorities for the day, write out a workable to do list.

2. Mentally, emotionally and physically keep the most important activities of your business-building day, the most important activities of your day.

3. Return phone calls and emails in the order of business-building importance.

4. Answer your business emails quickly and efficiently.

5. Call one, two or three prospects to set up a phone or face-to-face appointment.

6. Call one, two or three prospects to follow up on a previous conversation or on materials you’ve already sent them.

7. Send out a “quick tip” email to customers / clients. Be sure you have their permission to send the tips and include an easy way to unsubscribe if they choose to do so.

8. Share on your Facebook fan page something that is up and coming in your business – an event, a blog post, a new book.

9. Share 6 -10 tips and other business related information on Twitter. Using the product SocialOomph.com you can probably program about 10-15 tweets to run at scheduled times throughout the day.

10. Send out birthday, congratulations, anniversary or motivational cards to business associates or clients.

11. Mastermind / network with a like-minded success-oriented business owner who is willing to share business-building ideas, success strategies and how-to’s.

12. Write “e” invoices via PayPal™ for services and products.

13. Record a video or audio to post on your blog to help potential and current customers / clients get to know you, like you and trust you as a knowledgeable business owner.

14. Write a short post on your business-building blog. Remember, short posts can eventually become articles, articles become chapters and chapters can turn into a book.

15. Write one, two or three customer care emails or hand written notes to current clients/customers letting them know just how important they are and how much you appreciate them.

Do you realize that you’ve spent about four hours of quality, focused time growing your business? Imagine what you can accomplish each day, each week and each month with this type of focused business-building energy. The key to sustained profitability is consistently working on those activities that will successfully promote, grow and financially sustain your business.