Common Reasons Why Business Loan Applications are Rejected
Businesses in all industries need funding in order to thrive and grow, particularly during the early stages of the business where there will often be many costs involved in marketing, customer acquisition, building brand awareness and building a more competitive brand. When businesses do not have the funding available on their own to invest in everything that the business needs to get off to a successful start, applying for business credit such as small business loans or credit cards is often essential to cover these expenses. When it comes to getting the funding that your business needs, there are several options available. However, not all applications will be accepted. Here are some of the most common reasons behind rejections for business funding.
Applying for the Wrong Product:
It’s important to carefully consider your situation and determine which type of business funding is going to be the best option for your company before you decide where to apply. Some loans are more suitable for certain types of businesses than others. For example, if you need long-term funding, a bank will usually reject an application from a smaller or new business without much financial history, while AdvancePoint Capital offers long-term business loans designed for smaller businesses that you may have a better chance of acceptance with.
Too Much Existing Debt:
The amount of debt that your business is already dealing with will be taken into account when you apply for new business funding. Lenders will want to know that your company is in a position to manage not only the new loan or line of credit that you are applying for from them, but also any other credit lines or loans that you are repaying from the past. If it looks like your business might end up in financial difficulty if you borrow any more, then you’re more likely to be rejected than accepted until you have paid some existing debt down.
Lack of Financial History:
Just like when applying for a personal loan or credit card, the lender will want to see some financial history for your business before they will agree to give you a loan, credit card or other line of credit. This means that if your business is brand-new and you have not made any money yet, your chances of being accepted for business funding will typically be a lot slimmer. Because of this, it might be worth looking into alternative options for raising the funds that you need such as crowdfunding or an angel investor.
Personal Credit Score Issues:
When you are first starting out in business, chances are that your company has not yet got a business credit score that lenders can look at to determine their level of risk when lending to you. In this situation, lenders might look at the credit score for the business owner to get a better idea of how they handle finances in their personal life and how this might be applied to their business. If your personal credit score is poor, this can hold you back from getting business finance too.
While there are more options than ever available to get business funding today, it’s important to understand the various situations that might stand in the way of getting the funds you need.