Whether you’re a business owner at the very beginning of your venture or simply need some extra cash to expand or keep your business afloat, receiving funds can make or break your business. Hearing ‘rejected’ can be as heartbreaking as trying and failing to pursue your teenage crush but there it is – rejected. But don’t close your doors just yet, like anything in life, there are logical reasons as to why your business is being turned down for a loan everywhere…
Why was my business loan denied?
The sooner you understand the ‘why’, the sooner you can reach the ‘how’. How you can turn it all around, and get the funds you need to take your business forward and ultimately reach your goals.
Business loan denied? Here we’ll take you through 5 common reasons you may have been turned down for a loan everywhere:
The ability to secure business funding and avoid business loan rejection ultimately comes down to a lenders confidence in your ability to repay a loan. It doesn’t come down to your personal credit score alone, there are other and more specific factors that you also need to understand.
1. Bad credit – for both of your credit scores!
Say wha? You may automatically assume we’re talking about your personal credit score and you were rejected on this alone, but, and this is a big but, when it comes to getting a business loan, your business credit score will also be taken into account. Sure your personal score is important, especially if you’re the sole owner of your company, but your business credit score will also be taken into account so be sure to check your credit score.
If you’re scratching your head here then you’re not alone. According to The Small Business American Dream Gap Report, 42% of small business owners don’t know that they actually have a separate business credit score and 82% don’t actually know how to interpret it. This simple misunderstanding is seriously harming business owners and the sooner they understand this element, the better (more on understanding this later).
When it comes to your credit scores, you’ll appear risky if:
- You fail to make payments on time
- Have a lot of outstanding debt
- Have a high credit utilization ratio – more on that in the section below
It is possible to get accepted for a loan if your credit scores are low if you’re performing well in other areas (mentioned in points 3-4 below) which could counterbalance your score.
2. Misuse of your debt utilization
There are so many reasons for business loan rejection but one of the main ones could be to do with your credit utilization rate or ‘balance-to-limit-ratio’. This is basically how much you owe compared to the amount of credit available to you.
When it comes to your personal credit score, lenders want to see that you’re using no more than 30% of the total amount of credit available to you. So for example, if your credit limit for all of your cards is $10,000, you’ll need to keep your total credit card balances below $3,000 in order to keep your credit utilization rate low. On the other side of things, having no debt at all is another red flag to lenders. A lack of history of responsibly using credit will only highlight your inexperience with debt management – not a good look when it comes to applying for a loan.
Top tip to manage debt utilization:
Keep track of your credit limits for all lines of credit, personal and business credit cards and any other credit sources and make the small calculation to figure out the range you need to stay within.
3. You’re a very young business
Commercial loan denial reasons can vary greatly and one of the reasons could have something to do with your business’s age.
You probably wouldn’t want to be the first patient of a new dentist trying his hand at pulling out his very first tooth. Likewise, you wouldn’t want to be the first lender handing your money out to an inexperienced business owner whose only been running for a couple of months. Either way, it could all end rather messily (sorry for the graphic analogy but hopefully you get the point).
Lenders feel much cozier wrapped up warm in safety blanket, i.e. when they know they’re lending to an established business, at least 1-2 years old. So, if you have a good monthly revenue, and credit scores but are still being snuffed by the banks and even alternative lenders, it could be down to age.
Other than time hoping to the future, there are still options for younger businesses in the form of start up loans or crowdfunding – when there’s a will, there’s a way.
4. You applied with the wrong lender
Every financial institution has different criteria when it comes to giving out unsecured business loans – along with many products. And while it’s most difficult (and time-consuming) to get a traditional bank loan, it may be that there is a lender out there who you could match with, waiting for you to find them.
The problem is sending off lots of loan applications is:
- Can lower your credit score – each lender performs a hard credit check
Need a loan been refused everywhere – we have a solution:
The solution is right here at Lending Express. We realized this was a big problem for business owners and built our AI technology to match business owners such as yourself, with lenders they can qualify with.
How to apply:
- Enter your details into the application – apply here for business loans
- We will cross-reference your data with all of our lending partners to see with which one you can qualify – with no hard credit check insight.
- You will be shown relevant loan offers
If you’re in the ‘I need a loan but keep getting declined’ group then Lending Express can help you find out where you went wrong and what you can do about it…
Our LendingScore™ provides you with a personalized free dashboard explaining why YOU were denied a loan with effective ways to increase your chances of getting approved.
5. Your business revenue isn’t quite there
This one is simple, if you aren’t making enough revenue, it shows you may not be capable of paying back your loan. On top of that, if you’re spending more money than what’s coming in, then you will need to work on solving that cash flow problem.
How to work on your cash flow:
- Use effective invoicing systems
- Always have a safety net of emergency funds
- Cut unnecessary expenses
As you can see, there are many reasons for business loan rejection, and here we’ve only touched upon a few. At least now, with Lending Express, you can discover specifically why your business was denied a loan and what you can do about it.