If you’re a business owner or an entrepreneur seeking to set up a new business, then there’s a strong chance that you’ve needed to raise some capital to fund your venture. Business loans are a popular go-to for many, but if this was your first port of call and you found that when you applied for it, your request was denied, it might have been for one of the 7 reasons outlined below:
- Poor credit score
Demonstrating how worthy of credit someone is if they’re applying for business loans for women, a healthy personal and business credit score (or personal alone if the business is new or not yet up and running) is an essential requirement for most lenders, and if yours is damaged, you may find yourself denied a loan.
- Not enough time-in-business
Most lenders require that a minimum qualification of between 6 months and a year of time-in-business be met by the applicant, and for newer businesses, they simply won’t meet this criteria when applying for a loan.
- Not enough revenue or cash flow
As an extra requirement, a lot of lenders also require loan applicants to be able to show a minimum amount of revenue, either monthly or annual. While the loan amount and financing type can affect this number, most lenders place it at $100,000 to $250,000. Even those lenders that don’t impose an annual revenue minimum, will require that you provide them with documentation showing a healthy cash flow.
- Inadequate collateral
In some instances, lenders ask that borrowers secure a loan with assets of value within the business, and should the borrower default on payments, the lender has the right to seize assets to recover the outstanding amount. With this in mind, the value of loan collateral must be sufficient to cover the amount of the outstanding loan. For newer businesses, this can prove troublesome and your loan may be denied.
- Failing to supply all required documents
Not all business loans are simple to apply for, and some lenders have complex procedures and forms that ask for several different documents to be supplied by the borrower. Should you fail to provide everything that the lender has asked for, your application will likely be delayed or denied.
- Having too much debt already
The portion of credit limit a business is currently using is known as a business debt or credit utilization rate, and most lenders tend to prefer an applicant’s utilization rate to be less than 30%. If yours is higher, you may not be viewed favorably by the lender when applying for a loan, but may wish to try applying for a merchant cash advance instead, with the help of an online MCA Calculator.
- Being involved in a high risk industry
If you’re trying to open a restaurant, agricultural business or casino, for example, lenders who view these as risky industries, may therefore view your ability to repay a loan, as being risky, too. Any industry in which revenue may not always be stable or in which rates of failure are relatively high, are inevitably classed as such by many lenders.
If you’ve been denied a business loan, don’t despair; remember that there are plenty of alternative lenders out there, and although you may end up paying higher rates or having to provide collateral, you will still be able to get the financial help you need.