Businesses need access to funding to survive, particularly during the early stages where there is often a large cost involved with increasing brand awareness, acquiring new customers, and marketing products and services. Standing out from your competition as a new brand and encouraging customers to purchase what you offer can be expensive, which is why many businesses find themselves in a position where they need to apply for small business funding in order to meet their overall goals. However, business loan applications are not always accepted. Here are some common reasons why rejections happen.
Personal Credit Score Problems:
If you’re trying to get financing for a brand-new business with no history, lenders are likely going to look at your personal credit score as the business owner to get a better idea of how they can expect you to handle money. But if you are dealing with financial issues from your past like missed payments and defaults, this could lead them to reject your business loan application. This is because your personal credit score is all that the lender has to go on when determining how you and your business might handle money, and so far, it does not look good to them.
No Financial History:
When you have just started your new business and have applied for a business loan right away, your company’s lack of financial history could be what is standing in your way of getting the business funding that you need. Lenders will check a business’ history of borrowing and paying bills on time when they are considering whether or not to accept or reject the application. If they have nothing to go by because your company didn’t actually exist a couple of weeks ago, this could mean a rejection. Thankfully, easy startup loans are available for brand new businesses, so spend some time finding a lender that specializes in companies like yours.
Existing Debt:
If you have applied for and been accepted for business funding in the past that you are still in the process of repaying, this will also likely be taken into account by the lender that you are applying to this time around. In some cases, it is possible to borrow different lines of credit at the same time depending on your business’ financial situation. However, if your credit utilization score is high and the lender believes that you might struggle to repay this loan alongside any others that you are currently in the process of paying back, your application might be rejected or postponed until a later date when your company’s debt situation has improved.
How Much You’re Asking For:
Applying to borrow too much or in some cases, too little, could cause your application to be rejected. If you are applying for a bank business loan, for example, they are unlikely to agree to lend you a small amount of funding simply because it won’t be worth it for them. On the other hand, small business lenders might be more comfortable with lending a small amount of money and may be more likely to reject a larger application if they are not familiar with your business.
Business loan application rejections are more common than you might realize. If you have had your application for business funding rejecting, understanding why it might have happened will help you when reapplying in the future.