Obtaining a business loan can be such a hassle that some owners wait until they absolutely have no other choice but to apply – and then, unfortunately, they can see all their hard work go right down the drain as the loan is denied. It can be terribly unfair and sometimes, totally arbitrary, and it can cause serious stress for owners who need to expand or get updated equipment or hire more employees. Here are the three top reasons for a business loan to end up on the reject pile.
- Poor credit score. Banks give serious consideration to credit scores, so much so that even a viable, thriving business can be denied a loan if the owner once missed a car payment – even by accident. Is anyone perfect when it comes to their debts? Probably not, but it comes back to haunt small business owners disproportionately. Luckily, some merchant lenders aren’t as fussy about credit scores.
- A flaw in your business plan. Most owners will go Santa Claus on their business plan, making sure to check it twice for errors, but sometimes the flaw flies under the radar – that is until the bank sniffs it out and uses it as cause for rejection. Sometimes it’s not so much a single flaw as it is a business plan that is underdeveloped or has been written too vaguely for the bank’s liking.
- Small or weak customer pool. Incredibly, banks look not only at your cash flow, but where the money is coming from – namely if your business gets it from unique customers each month or relies heavily upon the same ones, over and over again. It might not matter to you, but it can devalue your business in the eyes of a bank.
Luckily, banks are not the be-all, end-all in small business loans. There are plenty of other places from which to obtain the cash you need to expand, and they are far less persnickety.