It sounds exciting to hear that you are starting your own business but taking the business in the road of profits is as tough as climbing up the hill. While some strive very hard to reach there, some may never get a chance to build strong business path. Lack of necessary funding is the main reason for the failure in most of the cases. It is never too late to apply for the business loan for funding financial needs of the business. However, there are many scenarios where applicants are rejected by the lenders for getting the business loan. If you are reading this article, I know that you just don’t want to be the victim of rejection. Here are few reasons why business owners are rejected for a loan.
Dig Out Reasons for Business Loan Rejection
Everybody has good intentions to repay the loan but, having a bad credit in the credit report may deny the business loan for you. Your bad credit just tells to the lender that you don’t prioritise repayment of the loan. Even if the business owner misses the repayment of the loans, such mistakes speak volumes to a lender so, it is important to keep your credit score good to get the business loan approved.
No enough collateral
Irrespective of future business projections by the borrower, the business owner needs to pledge the collateral to get the loan. If you fail to pledge enough collateral to get the business loan you need, you will face a rejection from the lender. The lender also takes into account the price of depreciation of the pledged collateral.
Borrowers often commit a mistake of under-capitalising their business loan requirements and pledge a wrong collateral. This may lead to the rejection of your loan application. There are a number of collaterals like personal and professional fixed assets, retained earnings and owner’ equity to secure the debt if required. Homework is necessary to analyse what you have on hand to secure the debt without disturbing the growth of the business.
Cash flow hurdles
The objective of every business is to make profits. If it cannot serve the purpose and make money, to begin with, the lender finds no reason to lend a hand for the business that has serious cash flow problems. Your loan application will face rejection from the lenders as the lender don’t want to risk high in a hope that your business generates profits. Irrespective of your need to apply for the business loan, the lender looks at adequate cash flow to repay the loan. Most of the banks need the business organisations to generate revenue for certain period before they apply for a business loan.