There are very few things in life that are as exhilarating—and also scary—as the prospect of starting your own business. So, when a loan request is submitted and denied, it can be crushing. Here are a few reasons why a small business loan might be rejected so you can avoid making mistakes on your application:
Your credit score– Credit scores are issued by the three major credit bureaus—Equifax, Experian, and TransUnion. Each lender has their own threshold for what they consider a “good” score, but the general rule is, the higher your score, the better your chances of getting your loan approved. Before you submit your loan request, find out your score then check with the lender of your choice to see what they consider acceptable. If your score doesn’t meet their standards, take steps to raise it.
You’re too new– It’s the old conundrum…you want a loan to start a business but you can’t get a loan because you don’t have enough business experience or business credit history. Some financial institutions are very strict on their lending policies and others look for ways to work with you. This is another great reason to have a solid personal credit score.
Collateral– Business loans are similar to personal loans in that you’ll be expected to have a down payment to secure the loan. Figure out how much money you’ll need to provide up front before submitting your application. For example, if you’re borrowing $100,000 and the down payment is 20%, you’ll need to have $20,000 in liquid assets available before the loan is approved.
Incomplete paperwork– Even if you have everything in order and you are ready to move your application forward, missing information or not completing the application correctly can cause it to be kicked back. In fact, this is one of the most common reasons small business applications are denied.
Don’t worry, you have an ally on your side. 504 Capital Corporation is a not-for-profit Certified Development Company (CDC) working with lenders and the U.S. Small Business Administration. We specialize in finding funding, working with our clients to make sure everything is in order, and finding the best loans for your situation.