The majority of businesses will need some access to funding in order to survive, thrive, and grow – especially during the early stages when it’s often quite expensive to get a business set up, build brand awareness, market products and services, and acquire a new customer base. There can often be a lot of costs involved in standing out from your competition as a new business, whether that involves investing in professional branding, purchasing new business premises, hiring the right team, or a combination of all these and more. If you’re planning to apply for a small business loan to get your company off the ground, here are some of the main reasons why business loans are rejected to look out for and avoid.
Lack of Financial History:
If your business is brand new, you likely haven’t made many or even any sales yet, and the financial history of your company is pretty much non-existent. Since business lenders often like to see some proof of responsible money management and profit from your company in the past, don’t be surprised if this is something that is going to put a lot of lenders off. However, that being said, it’s possible to get the business funding you need even if your business is just starting out. Crowdfunding, investors, and specialized small business and startup lenders might be good options for you to consider. Check out these tips to get instant approval on your business loan.
Existing Business Debt:
Just like borrowing money in your personal life, if your business already has some debt that needs to be repaid, it could get in the way of getting the funding you need. If your business has had funding in the past through a loan or credit card and you are applying for more, it’s important to carefully consider whether the company will be able to pay off both without running into trouble – and also prove this to the lender. If you have a business loan or credit card that you are already repaying, chances are that your lender will want to see financial documents and records for peace of mind that your business is bringing in enough to cover both.
Personal Credit Score Problems:
If you’ve just started a new business that has no financial history, your personal credit score might be taken into account by the business lender. Looking at how you manage your money in your personal life can help them get a better idea of how likely you are to make repayments and be responsible with your funding as a business owner. Issues like a lot of personal debt missed payments, or arrears on your personal credit score might make it harder for you to get the funding you need until your business has built a good credit score of its own, so it’s worth checking this and paying down your personal debt before applying.
While many businesses need funding to grow, getting the business loan you need isn’t always easy. Understanding the common reasons behind loan rejections can help you avoid this situation.