Banks are very selective when it comes to lending money. They want to make sure that the person or business they lend money to is able to pay them back with interest. If you are looking for a loan, but have been turned down time and time again, this blog post might shed some light on why the banks keep denying your requests. Read on as we discuss four of the most common reasons why businesses get denied loans.
1) You Haven’t Separated Your Business From Yourself
In order to be fundable, a business needs to be an entirely separate entity from its owner. This means that a business needs its own mailing address, contact information, the correct legal status, and a separate bank account. This signals to lenders that you are a serious and legitimate business, and therefore a worthy and responsible borrower.
2) You Haven’t Proved That You are Able to Repay
The bank is looking for a business that has the capability to pay them back with interest. If you are not able to prove this, then they will most likely deny your request.
Naturally, bankers want to make sure that they have a strong probability of getting paid back. You can provide information about how committed you are to paying the loan off by providing collateral or having an established credit history. In addition, if your business is new but shows promise, lenders might be more willing to take a chance on it than if your business was already failing and has had multiple rejections from banks in the past.
The lender also wants assurance that their money will be safe should anything happen while the company is in a process of growing. If you have some sort of collateral, this gives them some peace-of-mind that their money is safe in case the company fails and cannot pay back your loan.
3) Your Credit Score Is Not High Enough
You need to be able to prove that you are responsible when it comes to paying off debt, from your previous loans to your credit card payments. If you have a low credit score, the bank will most likely not trust that you can pay them back and therefore deny your request for a loan. The higher your credit score, the more likely it is that they will be willing to invest in you.
Remember that banks look at your personal credit score as well as that of your business. After all, if you can’t manage your own money well, creditors will be unlikely to trust you with theirs. You can improve your credit score by making your monthly repayments on time, using a credit builder card and using a service like Experian Boost to prove that you are fiscally responsible.
4) Your Records Are A Mess
Messy books and accounts are a huge red flag to creditors. You need to make sure that your records are impeccable to give your business the best chance at gaining approval for a loan.
The bank is going to want a detailed explanation of where all your money goes and why. If you cannot provide this information, the banker will deny your request for a loan because they will view you as irresponsible and will not know that they can trust you to make repayments on time.
If there's one thing that all these reasons have in common it is this: lenders need proof that they can trust you and that their money will not just evaporate into thin air. They want to make sure that you are a responsible business owner and can pay off your loans with interest. If your business does not have strong fundability, clean records, or the trust of the bank then it will most likely be denied for a loan. The good news is that now you are aware of this, you can take steps to fix these issues and put your best foot forward with future applications.
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