5 Reasons Your Business Loan was Turned Down

guaranteed business loans

On New Year’s Eve, many people take resolutions to improve life, but some of you have resolved to grab hidden opportunities to grow business. The growth of a business requires investment and unfortunately, many Britons lack funds. Even though you have savings, chances are you fall short of money to hit the ground running.

Whether you have a start-up, small, medium or large-size business, you need regular cash flows to run your business. Getting approval for guaranteed business loans from direct lenders is also not a cinch. Many times, you put in an application but loan companies rebuff it. If you need a business loan, make sure that you complete your homework to avoid rejection. Here are some reasons why direct lenders are dismissive of your loan applications.

You did not have a stellar credit score

Believe it or not, one of the most common reasons for rejection is you were under the impression that you had a good credit score. Money is lent only when you are capable to pay it off therefore lenders will ask for a credit report to estimate your score. 75% of borrowers presume that their scores are excellent, but the reverse is true. In fact, most of the borrowers take no heed of perusing their reports to make sure that it does not contain information, which can throw them out of the approval list.

What should you do?

  • Contact credit bureaus to get the report to read it thoroughly. If you notice any defaults, ask for the immediate corrections.
  • Before you apply for the business loan, you should calculate your score. If it is less-than-perfect, put off your plan to borrow funds rather focus on improving your score.
  • You can elevate your score by paying your all credit bills and other debts. Use cash instead of credit cards.

Your business does not produce enough revenues

A financial institution signs off on your application only when it is certain that you have regular cash inflows to meet your day-to-day business operations along with monthly instalments and still you have enough funds to meet unexpected twists and turns. If your business is seasonal, it will be alarming for loan companies to finance your business.

What should you do?

  • Let your clients know about payment modes and time before you work on their projects.
  • Try to receive half payment in advance and deliver the final project/product/service after you have been paid the rest money.
  • Your invoices should be professional and you should not hesitate to send your invoices promptly.

Your collateral is not worthwhile

Collateral mitigates the risk of loan companies as it gives them right to sell your property to recover losses and loan amount if you make defaults. Limited collateral will not help you convince your lender about your reimbursement ability.

What should you do?

  • You should prepare a list that includes everything, which you put up as collateral. These properties can be business as well as personal.
  • Your lender will pick up the one, which secures their money.

You have already multiple debts

Getting business loans is not as easy as personal loans. If you are already under the burden of debts, funding companies will deny lending you money as it is inferred that you are going to take another loan for paying off existing debts. Guaranteed business loans are not approved as long as your creditworthiness is not excellent.

What should you do?

  • First pay off all of your existing debts, including credit card bills.
  • Consider debt consolidation plan to reimburse all loans.

Your business plan is vague

Whether or not you have a start-up, a financial institution will ask you to submit a robust business plan in which you will list down your purpose of taking the loan and how it will help you thrive. More often than not, business plans fail to persuade lenders to invest money in your business because of ambiguity.

What should you do?

  • Your loan proposal must include your management, collateral, personal and business financial information, and cash flow summary.
  • You will mention how you will use the loan and how it will solve your business purpose.

Undoubtedly, getting business loans is a mammoth task, but you can mitigate rejection rate if you follow above-mentioned tips.

5 Reasons Your Business Loan was Turned Down

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