Categories: Business

6 Common Reasons Small Businesses Get Rejected For Loans

Have you tried applying for a small business loan several times without success? If so, then you are definitely not alone. Studies show that 4 out of 10 small business loan applications get rejected. That may be a high percentage, but it isn’t that surprising.

There are valid reasons why lending institutions refuse to lend money to small businesses. If you want to increase your chances of approval in the future, it’s best to familiarize yourself with these reasons and how to alleviate risks.

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1. You Haven’t Been In Business For A Long Time

Lenders feel more confident in lending money to businesses that have been in operation for a long time. The simple reason is that they want to work with businesses with a history of success. This is one of the best signs that the business can repay the loan on time, which also means that the business may be a valuable long-term customer.

What To Do?

Of course, you can’t afford to wait for years before applying for a loan. But if banks don’t even consider working with you, then it’s time to look for alternative borrowing opportunities. For startup companies, many lenders are willing to invest money. The most popular choices include online lenders, crowdfunding, Venture Capitalist investors. If you only need a small amount, you can use HittaSMSLan to find the cheapest short-term loans.

2. Your Business Has A High Failure Rate

Banks and lending institutions have their respective internal rules about what companies they will lend to. There are cases in which a bank may consider your industry as high-risk, so they will reject your loan application.

What To Do?

Traditional banks are strict with their rules. If possible, seek alternatives such as a community bank. Try to get a recommendation from a fellow entrepreneur, preferably in the same industry as yours.

This will prove that your business may not be as high risk as the bank perceives. Remember that when you approach a lender, it’s imperative to show that you know everything about your industry. Provide any pertinent information that demonstrates the industry’s performance and the potential success rate of your business.

3. You Don’t Have A Strong Cash Flow

If your business doesn’t have free cash flow, then your chances of getting approved are slim to none. The reason is that lenders want to feel reassured that you can service your debt on time. Before applying for a loan, take a look at your financials and figure out how you’ll repay the loan each month. Prepare some documents including your business plan, bank statements, and tax returns as these may be asked for by the lender.

What To Do?

Take small steps to improve your cash flow. Instead of merely focusing on boosting revenues, be sure that payment collections are done promptly. You may put new rules in place such as late payment penalties to give you more cash. On the flip side, try lengthening the time you need to pay your suppliers to ensure that you have cash on hand for a longer period.

If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.