Why Small Business Loans Get Rejected

If your business is struggling to stay ahead of creditors and pay employees, a small business loan could be the answer. But will you qualify?

NerdWallet, a personal finance website, asked lending experts what the most common reasons are for small business owners to be turned down for small business loans. Here is what they heard back:

Bad credit or no credit – Where a loan is approved and how much interest will be charged depends upon your personal credit score as well as a business credit score if there is one. If you have minimal credit history or no credit history, you may have to investigate the option of an alternative lender.

Weak cash flow – Banks want to see that business take in enough money from month to month to cover expenses, payroll, inventory and other costs while also making payments on a loan.

Lack of collateral – Banks want a business to have physical assets that can guarantee a loan if a business owner is unable to make loan payments. This could be equipment, real estate or even personal assets such as cars or a home. However, be cautious about blending your personal financial life with your business finances.

Lack of preparation – Sometimes, the downfall of a loan application is sloppiness in the application itself. Before applying for a loan, businesses should have a written business plan, financial statements or projections, personal and business credit reports, tax returns and bank statements. You should also have copies of all pertinent legal documents, such as business formation, leases, vendor contracts and permits needed to operate.

Is a loan the right step?

It’s natural to want to keep your business alive, get right with creditors and move your business into the black. However, taking on additional debt through a small business loan is not always the smartest move. There is some debt that is better

Not all debt is created equal, and there is some debt that may be smarter not to pay off. If you are struggling to keep a small business afloat and it’s impacting your personal financial life as well, it’s time to speak with a knowledgeable debt consolidation and bankruptcy lawyer.

Related Posts
  • Can Businesses Benefit from Subchapter 5 in Chapter 11 Bankruptcy? Read More
  • Subchapter V of the Bankruptcy Code Read More
  • Does Business Bankruptcy Affect My Credit? Read More