4 Common Reasons Business Loans Are Denied

The right financing can give a business what it needs to either survive or flourish, but landing the right small business loan can sometimes be difficult. Here are 4 of the most common reasons that prevent business owners from getting approval.

1. No Business Plan

When evaluating your application, lenders determine how risky of an investment you are. Not having a plan about your business and how you intend to use the loan makes you look unpredictable and disorganized. A half-written or undetailed plan won’t suffice, either. Show your worth to lenders by clearly articulating your intentions and backing up your goals with data and financial projections.

2. Bad Credit

Your credit score is one of the first things lenders look at to determine eligibility. Many experts say that a score lower than 700 makes it difficult to qualify for a small business loan, do what you can to boost your numbers if you fall below that line by keeping your credit utilization under 30%, paying off debts promptly, and regularly checking your credit report for errors. Take advantage of your free yearly credit report to comb over your history. Additionally, pay attention to your credit score as well as your business score. Personal finances also play a major part in landing a loan, so practice those same behaviors for both business and personal.

3. Poor Cash Flow

Lenders want to see that you’ll be able to stick to the terms of the loan and pay everything back promptly. If your cash flow is limited, there’s a high probability that you’ll be denied. One tip is to look at your finances quarterly and calculate your cash flow so you can regularly address any issues. It’s important to do so before applying for a loan so that lenders see you at your best.

4. Not Playing Patiently

You’ll need to show that you’re thinking about financing seriously. This means proving that you’ve shopped around and weighed your options, ultimately concluding that the loan you’re applying for is the right fit. Seeking advice from financial experts will also improve your chances, so use accountants or networking groups to come to the right decision. Avoid applying to multiple loans at once. Not only do multiple hard inquiries into your credit history lower your credit score, but lenders see this as a red flag, as it comes off as scrambling and disorganized.