5 Reasons Your Business Loan Was Denied
Starting your own business can be one of the most difficult, yet rewarding, endeavors you will ever take. It can be extremely expensive and take a long time to reach profitability, which is why many people make the decision to take out business loans. Knowing the reasons why people are often denied these loans can help you better prepare your application and give yourself a better chance at being approved. Triton Capital can help, too!
Top 5 Reasons for Loan Denial
1. Bad Credit – While having average or poor credit will not always mean getting a loan is impossible, it is one of the biggest reasons people are not approved for a credit line. Poor credit is a red flag for creditors because it is a sign that borrowers, and their businesses, do not prioritize paying off their debts.
2. Insufficient collateral – When a bank is lending money to someone, they want to be sure that that loan is going to be repaid. If you are unable to make payments on the loan, the bank will look for other means to get their money, such as liquidating your assets. These assets are considered collateral and provide the bank an insurance policy. A person or company that has several assets will be more likely to be approved for a loan since there is more incentive for the borrower to pay.
3. Lack of cash flow – All businesses exist in order to make money, so a lender will not be likely to loan money to a business that has cash flow problems. If a company isn’t making money to begin with, there is little hope that putting more money into it will make it generate growth.
4. Business is too young - Even if your business has excellent cash flow, it still may be denied a loan because it hasn’t been in operation for long enough. Bank loans are not ideal for startups because they will look for a few years of revenue on which to make their decision.
5. Difficult conditions – If a bank believes that your business is likely to face economic difficulties soon after you are approved for a loan, they may deny your request regardless of high cash flow, astounding credit, and ample amounts of collateral. If they believe for any reason your company may have a hard time generating profit, your application will be denied.