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6 Possible Reasons Why Your Small Business Loan was Rejected

After spending countless hours creating a business plan and building your brand, it is defeating to hear that you have been denied a small business loan. While access to small business loans has improved recently, the situation is far from perfect. There is still a long list of possible reasons why banks might be quick to turn you away.

  1. Poor or No Credit

When applying for financing, banks will typically consider both your personal and business credit scores. What they find will determine their lending decisions and the interest rates you are offered. Your credit score serves as a risk indicator for the bank based on your credit history. If you have poor credit – or even no credit – banks will likely turn you away. You can easily obtain and your score through the three main personal credit bureaus: Equifax, Experian and TransUnion. Keep in mind these scores may differ slightly, and it is hard to tell which score the lender will look at.

  1. Limited Collateral

Before they agree to lend to you, most banks will require collateral; this physical property guarantees the loan if it is not repaid. The amount the bank will be willing to lend to you will depend on the value of those assets. If you are a new small business, the equipment or real estate you can offer as collateral may be limited. Also, many business owners are understandably unwilling to use their personal assets (homes and cars) as collateral. If you have little to offer that is valuable in the eyes of the bank, you might have trouble securing a bank loan.

  1. Cash-flow Problems

One of the biggest and most common problems is weak cash-flow. Banks want to see that your business has enough money to make monthly loan payments, while also covering … Read More ...