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Ask SCORE: Why was my loan financing app rejected? – Albert Lea Tribune

Ask SCORE: Why was my loan financing app rejected? - Albert Lea Tribune
Written by Publishing Team

ASK SCORE by Dean Swanson

For business owners, it’s a terrifying situation: you were counting on getting this business loan financing, but the bank rejected your application. In the past few months, we’ve had several small business CEOs struggle with the problem of their business loan application being disapproved and asking for help. Sharita Humphrey is an award winning financial expert and financial mentor. I recently addressed this issue as one of SCORE’s content partners. I’m sharing this to help CEOs assess their next step after being refused a loan.

Dean Swanson

Being refused your business financing application can be frustrating. You have to deal with many questions: “Why was my application rejected?” Should I try again at another lender? Or, more commonly, “What do I do next?”

There are several reasons for business loan financing applications to be rejected. Here is a list of four reasons why your business loan may be rejected. If you plan to apply for a loan in the near future (or if your application has already been rejected), you can use this list to avoid facing rejections in the future.

1. Poor credit history. Your credit history provides lenders with insight into your payment history and how you handle your money in general. If you have previously defaulted on loans, have many missed payments or have maxed out your credit card(s), this could lower your FICO score. This, in turn, can affect how lenders perceive you as a potential borrower. Other reasons for business loan rejection include not having enough credit or having little or no credit history.

Creditworthy borrowers are usually those with a FICO score above 670. FICO recommends some simple ways to improve your score:

• Pay your bills on time.

• Regularly check your credit report for errors – and challenge them immediately.

• Pay off your debts.

2. Incomplete/invalid documents and papers. Unfortunately, one of the most common reasons for business funding applications to be rejected is due to incomplete or invalid documents or paperwork.

The reason may be that the applicant did not fill out the application correctly or did not submit all the necessary supporting documents.

Among the documents required by most lenders are bank statements, tax returns, proof of business registration, business licenses and permits, financial statements, an Employer Identification Number (EIN), and your personal and business credit reports. They may also ask you to provide other documents related to your business, such as leases, contracts, permits, licenses, and company documents.

To avoid any issues, be sure to put your papers in order before placing your order. After that, be sure to double-check everything. Also, don’t forget to review each step of the loan application carefully to make sure you fill it out correctly.

3. There are not enough guarantees. Most traditional lenders require you to provide sufficient collateral before you can take out a business loan. So, if you don’t have enough collateral—or if you don’t drop the right kind of collateral—you probably won’t get approved for business financing. Warranties can come in various forms, such as auto, home, heavy equipment, etc.

You might be thinking, “But I couldn’t buy any business equipment without a loan in the first place!” Unfortunately, here’s the truth: Chances are, you can’t get approved for a loan because you don’t have enough valuable assets. If this is your situation, try to find an alternative source of financing such as an unsecured loan.

4. You are a new business. If you have recently launched your business, you may not have established enough business credit history to qualify for business financing. Remember: sellers don’t always automatically report your payments to commercial credit agencies. So, when you create an account with a new seller or supplier, make sure they report your payments. This will help your business build a good credit history.

Of course, it is quite possible to have solid financial resources and run a successful business even if you have not been in business for a long time. But to get the business financing you need, you may have to search more seriously for the right lender that fits your situation.

Dean is a SCORE Certified Volunteer Guide and former SCORE Chapter President, District Manager and Regional Vice President for the Northwest District.

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