You have a small business that you dream of growing further. You request for a loan from a financier with all the hopes, but all you get back is a response that your loan has been denied. It is frustrating.Sometimes your application for a loan may be rejected more than once. The problem is, not many of the available financiers are open to telling you the exact reasons why they opted to deny you a loan. It means that you are likely to repeat the same mistakes in future that lead to your loan request being denied. Knowing the reasons can reduce the chances of future frustrations.
A new startup
Being the first venture ever is a good reason many financiers will refuse giving you a loan. Many of the currently available lenders want to know that you have some experience in the field that you are getting into, you have a good track record in the field, and are capable of creating good revenues from the venture.
Already too much indebted
It is possible that you have already asked for financial support from other lenders, which will make the prospective financiers cautious in extending you credit. Hence, it is necessary that you pay all the outstanding loans or negotiate with your lenders early in case you are unable to pay the loans in time. It will increase the confidence of potential financiers hence chances of getting your loan approved.
A risky venture
Traditional lenders consider some industries as risky investments, making them hesitant in approving loans to such businesses. If you are interested in a business that has a high failure rate, then the potential lender may reject your loan application because of uncertainty whether you will be able to pay back in case your business fails. Thus, it is necessary to find a financier that has specialized in the industry you are interested in doing business.
Lenders are always keen on your cash flow before they can consider extending you a loan for a small business. The cash flow enables them to evaluate your ability to meet the business expenses and remain with some financial cushion as you continue paying back your loan. Some of the red flags that can result in your loan being denied are regular seasonal slumps and spotty cash flow. Many businesses with poor cash flow usually end up failing. This can be circumvented by using software to make the generation of cash flow projections and reports easily and closely monitoring weekly cash flow. Prompt collection of due payments from customers is also very important is developing a good cash flow hence increasing your chances of landing a loan next time.
It is necessary that you research enough and stay up to date with new industry trends. The option of looking for other loans or delaying application to a later date is viable in case you note external influences that will put you at risk.