Here’s why you can’t get a loan for your small business

Any business, big or small, needs funding at least once in its life-cycle. However, although established enterprises often find it easy to score capital, things aren’t as rosy for small business owners. Despite the positive outlook towards small businesses, many applications get denied, for one reason or another.

What’s worse is that, according to The Small Business Association Dream Gap Report, more than 25 percent of unsuccessful applicants don’t know why they’ve been denied funding. Many owners, therefore, avoid hiring and expanding because of the frustrations of trying to access funds, and instead turn to their personal accounts and savings.

If you’re the proud owner of a small business, knowing the likely reasons behind your fruitless loan application will help you make more informed plans for your business’ future.


  1. Credit score

The SBA study revealed that failing to understand business credit scores is a primary reason small businesses can’t get bank loans. Many entrepreneurs start out unaware of business credit, and unknowingly do damage to their score by going after small loans and maxing out personal credit cards.

If your bank has rejected your application for a business loan, the chances are high that your credit is the cause. Banks use a business’ score on the FICO Small Business Scoring Service (SBBS) to determine the likelihood of it making on-time payments. If yours has a poor credit history, your loan request will likely be denied.


  1. “Risk” Status

SMEs are typically classified as “high-risk” by lending institutions, but things can get especially complicated if you’re in an industry that’s itself considered risky. A new firearms or pharmaceuticals merchant, for example, will find it nearly impossible to acquire a bank loan.

To determine whether you have a chance at scoring a loan, therefore, evaluate your industry and identify the risks involved. If for instance, the industry is one that’s prone to fraud, drastic economic changes or government regulations, you’re better off with other funding sources.


  1. Unpreparedness

Some business owners believe that they can simply walk into a bank, fill out a few papers and get approved for a loan. In truth, however, the application process entails much more than going through the forms.

Banks typically require new applicants to present financial statements and projections, credit reports, tax returns and a written business plan. You should also have copies of relevant legal documents, such as articles of incorporation, contracts, leases, licenses, and permits.

If your application came up short, it’s likely you didn’t meet the bank’s requirements.

Small business owners have it tough as far as financing is concerned. However, don’t let a “no” from your bank kill your spirit. Instead, consider seeking alternative funding solutions. Third-party financiers like First American Merchant will review your request for a high-risk business loan even when your credit score is low, and their application process won’t demand to know everything about your life.


Comments are Closed