What Could Be Preventing You From Qualifying for a Loan?

by | Oct 25, 2021 | Business Finance, Small Business | 0 comments

Almost every small business will consider getting a business loan at one point or another. This could be for various reasons—everything from an expansion project to a new product launch to hiring more personnel to just needing additional capital to make it through a slower time.

The funding options are out there for small businesses nowadays. And especially if seeking funding from an alternative or online lender, your approval odds go up quite a bit versus if you were applying at a traditional bank. However, that is not to say you will automatically be approved for business financing through an alternative lender. You still need to do documents that need to be supplied and specific criteria that generally have to be met, though again, they are not as stringent as more conventional lending institutions.

What you need to know about business funding

Here are a few facts that you should be aware of when it comes to small business funding in the US:

– Over 40% of small businesses say that paying their operating expenses is the biggest hurdle they face.

20% of owners will use their 401k retirement accounts to help them start their business.

– With COVID, 70% of business owners say they will need additional aid in the form of business funding.

While these are just a few small business stats among so many, the point is, it does boil down to the need for more money for many business owners. And the question of where to get that money is undoubtedly one that consumes many entrepreneurs. So how do you position yourself to have the best chances of qualifying for a loan? What should your application packet look like? And perhaps most importantly, what is preventing you from being approved for a loan? Below are a few primary reasons businesses get turned down for a small business loan.

Less than Stellar Credit History

While it is never all about one number or a single score with alternative lenders, your credit history still does count. Though, they tend to take a more effective picture approach to business lending in general. Here’s the thing, even if your credit score is less than ideal, there are still things you can do to try and fix it. For instance, you want to check for any errors. It is not as uncommon as you might think for a credit report to have mistakes, and because of this, your score is impacted. So check for and report any errors immediately. You also can start paying down your debt. This is the most efficient way of boosting that score and improving your overall credit report. Start with the higher interest debts and pay what you can—even if it is a little each week- to reduce the amount owed.

Cash Flow is Limited

All lenders will look at the cash flow position of your business. Cash flow represents the amount of money you have coming in versus the amount you have going out every month. The cash available due to your cash flow position will let a lender know whether or not you are comfortably able to make the loan payments. If you have insufficient cash flow, odds are your loan application will be rejected. The lender will see that making those monthly payments may be a struggle for the business, and consequently, they will be unlikely to want to take the risk. This is why many experts suggest you apply for a loan when you don’t necessarily need one. This way, your cash flow position is favorable, and your approval odds are, in fact, better.

Too Many Current Debts

Let’s say you already applied for a received a business loan within the past two years. Upon looking at your credit history, a lender will see this. Lenders do not like when clients have multiple outstanding loans. This threatens the position they are in as far as being a lienholder. So, if you default, the lender in the second position will only get what’s left of the available assets after the first position lender has made their claim. This is why it is often best for small businesses to have one loan at a time.

Lack of a Business Plan

While not all lenders require a business plan if your company lacks in other areas, a business plan certainly can’t hurt. Being thoroughly organized before applying for a loan and having all available documents—to include a business plan—ready to go will only help your chances in the end. Not to mention, a solid business plan gives your organization greater credibility; it shows that you are serious about the company’s future and, to this end, helps alleviate some of the lender’s concerns.

You Didn’t Shop Around

Not all lenders are the same, and many will offer different programs and financing solutions for other businesses. As noted, a traditional bank will be much harder to get approved by than an online or alternative lender. And within the realm of alternative lenders, you also need to shop around to see which has the ideal program for your company. Going with the first lender to appear in your online search can result in a negative outcome. Please do your research; spend time looking into the lender and understanding their financing solutions.

First Union Lending is Here to Help

Our job is to ensure that our clients thrive and succeed. This is why we do what we do. We offer a variety of fast and flexible loan programs with the small business owner in mind. Whether you’re in Florida, Georgia, California, or anywhere in between, we are here for you! Call today and let’s get started!