Being able to borrow can play a crucial role in development for small and medium sized businesses and it can be a crushing blow to get turned down for finance. However, there are usually some very good reasons why this happens – and you can learn from these for next time.
Your credit score isn’t high enough
Small businesses with little or no assets and not much time on the clock are reliant on the credit score of owners to convince a lender to agree to loan money. So, if your own personal credit score could do with a little love and care then that could be one reason why you were refused a small business loan. You could also have the same problem if you don’t have a credit score – if you’ve never borrowed money or taken out a debt agreement, such as a phone contract, then your creditworthiness is unknown.
The business doesn’t have strong cash flow
Of course, you may be borrowing the cash to help generate new channels of cash flow. However, lenders also need to be able to see that you’re going to be able to make the repayments – and that requires liquidity. So, if your business’ cash flow is currently strangled that might be why your loan application has been turned down.
You’re not taking it seriously
Long gone are the days when any small business owner could simply stroll into a bank and secure themselves a loan. Lenders are nervous and finance is not as easy to come by as it once was. As a result, it’s those business owners who have done their preparation, from cash flow spreadsheets to a convincing business case, that are the most likely to succeed when it comes to lending. If you have been refused a small business loan then it’s worth examining whether you were really as prepared as you could have been.
There are a couple of reasons why the business itself could stand in the way of a loan. The first is that you are looking for finance for a risky business that is making a risk averse lender nervous. The second is that your business might not be a sound proposition or you don’t have a convincing business plan. Either way, if the bank doesn’t believe your business will be profitable – or isn’t willing to take the chance that it will – then that could be why you’ve been refused a small business loan.