Five reasons banks turn down small-business owners for loans

In General
You were counting on that small loan to jump-start your struggling
business, but your bank said “no” and  it makes you feel anything but better.
You need to know that  you are not alone. Getting rejected is never
fun, however,  you should know exactly why your loan application was rejected -in the first place- so you can make sure that it doesn’t
happen again.
Bad credit
Credit history is one of the first things that lenders will review when going over a business loan application. But bad credit on either the business owner or the business can impact the business getting a loan.
The good news is that you can repair your low credit score by paying your bills on time, getting your credit card balances under control and repairing any mistakes that appear on credit reports.
Weak cash flow
Banks are very concerned that businesses have enough cash flow to make monthly loan payments in addition to covering their payroll,
inventory, rent and other expenses.
Unfortunately, many startups and small businesses struggle to keep enough money in their bank accounts even when they’re profitable, often because they have to pay third-party suppliers upfront before they get paid for their product or service.
If you notice that there is a weak cash flow then you need to cut expenses and find ways to bring-in some extra so that banks won’t reject your application.
Time in business and limited collateral
Loans for new new small businesses do exist, but, for example,  if you are looking for a traditional simple interest business loan with a
monthly payment, you will need to be in business for at least two years.
You may even have difficulty qualifying for this type of loan until you’ve been operating for at least three years. The reason is that traditional loans require two full years of tax returns to prove consistent gross and net profits.
Additionally, small businesses that are just starting out often don’t have the collateral, such as equipment or real estate, required if your business ever defaults on the loan.
You may have to look for alternative sources of funding, such as peer-to-peer lenders, crowdfunding, or online merchants, if you just started your business. As for collateral, you can use personal assists like your home or vehicle.
Lack of preparation
Experience also shows that many businesses simply aren’t savvy about the application process and believe they can walk into a bank, fill out an application and get approved for a loan.
Prior to applying for a bank loan,  you have a written business plan, financial statements or projections, personal and business credit reports, tax returns, and bank statements.
Also included should be copies of legal documents, which include articles of incorporation, contracts, leases, or any licenses and permits that you need for your business to operate.
Outside conditions
What if you have a solid credit score, strong cash flow, collateral
and have prepared everything you need for loan, but are still turned
down? It could be no fault of your own.
It may just be outside conditions that are out of your control. They can include industry experience (do you have the work background to manage your own business), a business’s location, local or regional economic trends, competitors.
Furthermore, factors such as local climate conditions and politics could influence an applicant’s approval or denial.

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