Getting a business loan can be a complex venture.
Having background knowledge will help you throughout the process. Being denied by a bank is not uncommon for applicants who don’t take the time to educate themselves. If you want to avoid the embarrassment of seeing a “DENIED” stamped on your application, then take a minute to learn why banks deny loans to small business owners.
Bad Credit Scores
Your credit history is one of the first things that lenders look at when reviewing a business loan application. A good credit score proves to the bank that you have properly managed your personal affairs. It also tells bankers that your business will do the same and make payments on time. If your personal credit scores are low, the underwriting team will deny you. If you cannot manage your personal finances, then you may appear to be too risky for a business loan from the bank.
Luckily, you have an alternative. If a traditional bank denies your business loan because you have poor credit, you should explore business loans for bad credit. At Financing Your Way, we offer business loans for people with bad credit and won’t deny your business credit simply because your personal credit score is low.
Banks Don’t Believe You Can Pay Them Back
Keep in mind that one of the most important factors a bank considers is your ability to repay what you borrow. Bank underwriting teams use algorithms to calculate your company’s debt to income ratio. This metric tells them if you have a balanced amount of debt based on your income level. If this ratio is more than 43%, it signifies to underwriters that your company will not be able to fulfill its current debt obligations and would likely default on a new loan.
So if you want your chances of being approved to increase, be sure to review your current level of debt and compare it to your current month’s income. If the ratio is higher than 43%, you will be denied a traditional bank loan, but you still may qualify for a Financing Your Way business loan. Financing Your Way looks beyond simple ratios in an effort to understand your business as a whole. We know that low income months are often a result of slow seasons and not a sign of an inability to repay a loan.
Time and Experience in Your Field of Business
It is a well-known fact that the longer you are in business, the more you know about your craft. Lenders consider the time you have been in business and weigh this as a factor in the approval decision. The average business will begin to acquire assets and equipment after a three year period. These assets can be considered as collateral. If you have no collateral, you will be denied a traditional bank loan. If you are a new business, you are not disqualified from getting the business loan you need. At Financing Your Way, we offer flexible business loans for businesses with one year of history.
Weak or Inconsistent Cash Flow
Banks are extremely concerned if your business doesn’t have enough free cash flow to make the monthly payments from a loan, cover payroll, rent, and other expenses. Start-ups and small businesses often have problems keeping enough money in their bank accounts.
Bank underwriters know whether your business has low cash flow by looking at your company tax returns and the bottom line profit and loss statements. Non-traditional lenders like our partners request minimal paperwork and approvals are fast and easy.
Lack of Preparation
Be smart and prepare before you walk into a banking institution. You should have financial statements, projections, personal and business credit reports, tax returns, bank statements and legal business documents printed and prepared. It doesn’t hurt to throw on your best business suit either. This level of professionalism will demonstrate to the underwriting team and the banker that you are serious about obtaining a small business loan.