Reasons for Business Loan Application Rejection
Business loans may be needed on many occasions to continue business operations successfully. Your frustration starts as soon as you begin to search for business loan. There can be different reasons for the rejection of application for such a loan. Here are some of the reasons of application rejection and what lenders might be noticing while reviewing your loan application.
- The credit score may have dings
Credit score or rating isn’t really an ultimate measure to decide whether your loan application will be approved or not, however, if there are dings in the credit file from any other loans that haven’t been repaid then it’s a caution for the lender that it is extremely unlikely for you to manage one more loan as you move forward. However, there are certain situations which lenders can overlook based on overall circumstances that lenders may take a look at. Reasons for your previous rejection of the loan should be quite convincing.
- There isn’t enough collateral
Every business loan needs collateral. To be unfortunate not all the businesses, profits and cash flow aside, have enough collateral for supporting size of business loan that they want to have. One more obstacle would be depreciation in the price of particular collateral. You might have bought something for a far bigger price but with time it has lost its value and now its worth may not be equal to what you’re willing to borrow. To put it simply, there may not be enough value in the business holdings to get a loan approved. So, better know your collateral’s value prior to asking a bank for loan.
- Problems with the cash flow
One common purpose behind any business is making money. No business is founded for any other reason besides making profit from its operations. Resultantly, lenders do not see any reason for offering money to businesses which have serious issues with their cash flow. If some business is not making enough money to kick start things then it’s needless to give it a loan just hoping for some kind of growth. No matter if you need capital for some established business or for some startup, enough cash flow should be there for the repayment of the loan. The business must also be able to pay for all other expenses that it incurs outside of capital that it is willing to borrow.