There are times when a business needs a boost financially. The problem is that when it really needs help, it isn’t always in a position to qualify for a business loan. There are many reasons a business can be denied a loan. Understanding those reasons is the best way to take control of the situation and improve your business’s financial health before you need to apply for a loan. Look closely at the following reasons and begin to adjust your business practices accordingly.
Low Credit Scores
Low credit scores are sometimes indicative that you may have trouble making payments or that your debt to income ration is too high. Either way, it is a powerful factor in determining whether or not you can obtain a business loan. If you want to boost your credit scores, pay down some of your existing balances and make sure your payments are made on time. Federal funding for small business may not require a high credit score.
Too Much Debt
Having too much debt is an indicator that you may be overextended or that might be having a problem paying down some of your balances. Try to increase the amount of money you pay on any balances you may owe. Even paying a few dollars extra every month will help lower your debt and make you a much better candidate for a small business loan. The more you can put toward your outstanding debt, the more responsible you will look when you apply for credit later.
Not Enough Collateral
Many business loans require some type of collateral. This can be manufacturing equipment, fleet vehicles, buildings, or any other type of asset that holds value. Collateral will hold more true value if it is owned outright with no liens or outstanding loans. Pay off your assets as soon as possible so you can use them as collateral in case of an emergency. This is the best way to ensure that you will have the funds you need if an emergency arises.
Insufficient Credit History
If you have only been in business a short period of time, you may not have had a chance to build up a solid credit history. That’s the Catch-22 of business funding. In order to get the best loans, you must already have great credit. If you don’t have a good loan, it’s hard to build good credit. The cycle will continually repeat itself into your credit starts to build, either through good business practices or by paying small debts on time for several months in a row. Federal funding for small businesses may be a good place to start.
Slow or Sluggish Business Activity
Another big factor that is considered by lenders is your business’s overall performance. They want to see forward motion, such as a continual increase in sales from week to week or month to month. Improve your marketing strategies and slow down your spending until you get money flowing into your business. Promote your business every way you can and your income will gradually increase.
Being denied for a small business loan can be devastating. It’s important to be proactive. Do what you can do before you actually need financial assistance. If you begin to correct these mistakes when times are good, you may be able to turn a possible denial into a probable acceptance. Keep putting your best food forward and it won’t take long to turn your business’s financial situation around. Options like federal funding for small business may be able to help.