Reasons Small Businesses Get Rejected for Loans
Did you know that as many as 40% of small business loan applications get rejected? It only cements the fact that if your business is new or the market conditions are poor that getting a loan can be quite a challenge.
However, if you understand the most common causes for these rejections, you can take steps to avoid them and give yourself a better chance of approval.
As we’re a small to medium sized enterprise business, we thought we’d look into some common reasons why smaller businesses seem to get rejected for loans. We ended up reaching out to some of our national customers that had unfortunately been declined a loan. Here’s what the common four reasons were:
The Business Hasn’t Been Operating for a Long Period of Time
It’s important that lenders have proof that you’ve been successful in your business activity. It reassures them that you’re able to service the debt (repay the loan), and that the business has a good engine to give a return on their investment.
If you’re a younger, smaller business LoanBird might be able to help you with small funding opportunities. Alternatively, you could try a different approach in the form of Kickstarts or an investment from Angel or Venture Capitalist investors. Seeking finance for your business this way will require a more in-depth approach, for instance a detailed business plan, etc.
Your Industry Has a High Failure Rate
Banks and lenders are known to have strict rules about the business type they’re willing to lend money to. The higher they deem your industry’s failure rate, the less chance of them lending you money.
To overcome this, part of the point above will come into play, along with showing a solid years worth of accounts, some may require a longer account period depending on the value of the loan. By doing this you can prove that you know your industry inside and out, it’s profitable and along with providing a clear business plan, they might make you an exception to the rule.
Your Cash Flow Isn’t Strong Enough
Lenders often use proof of positive cash flow as reassurance that you’ll be able to make your repayments back on time. This means that it’s vital you have figures to hand and can provide a structured business plan. They will likely request you provide bank statements to show your current cash flow status along with future forecasts.
You Have too Much Debt
Lenders want to see that you can repay the money they lend you. This means that if you already have a lot of debt, you may struggle to get the financial investment you need. The way around this, if you can, obviously look at reducing it first. On the other hand, the lender might require you to personally guarantee the loan repayment to cover the instance where your business can’t.
If you’re actually looking to open a small business in the UK, then why not see if LoanBird can get you the financial backing you need. We have loans that could potentially consolidate your debts, offer you longer term payments, and even support bad credit.