Your face didn’t fit
Banks often have strict lending criteria
. Some target small businesses whereas others only lend to established businesses. There is little point in applying to a lender who is automatically going to reject your application because your business is not a good fit.
Before you fill out a loan application, speak to an advisor first to make sure your face fits. Poor credit
It stands to reason that a poor credit rating will hamper your chances of securing a business loan. If your credit history is not great, the lender will view you as a high-risk customer. This also applies to your personal credit.
Some lenders specialise in high-risk lending, so if your credit rating is bad, approach one of them rather than risking rejection by a regular bank. You will have to pay a higher rate of interest, but you are less likely to be rejected. No credit history
No credit history is just as bad as a poor credit history. When you are an unknown quantity, for example, because you have only just started trading, lenders are going to view you with suspicion. If you started the business using your own savings and you don’t have any lines of credit with a supplier, it is hard for a lender to make a risk assessment.
Work at creating a solid financial history and establishing lines of business credit
with suppliers before you apply for a business loan. No collateral
Depending on the size of the business loan, the lender may expect you to put up collateral. If you don’t have any assets or anyone willing to co-sign the loan agreement, a lender will be less willing to offer you a small business loan.
New businesses typically have little in the way of collateral, so be prepared to offer personal assets such as property as collateral. However, do bear in mind that your assets are at risk if you fail to make your loan repayments. Insufficient cash flow
A lender will want to make sure you can afford the loan repayments if they agree to loan you some money. It is a good idea to prepare a cash flow forecast before you apply for a small business loan. If your figures don’t stack up and it becomes apparent that loan repayments could compromise your business’s cash flow, think twice about applying for a loan.
If a lender refuses your loan application, always ask them why. It could be something as simple as a wrong business address on the application form, which is easily fixable.