If you have good credit and are still having trouble getting a business loan, you may feel confused. You may be wondering why you were refused a small business loan.
Lenders don’t necessarily have to tell you, and it may not have anything to do with your credit score. On the other hand, it may have something to do with your credit score – not just what you think.
Strong financial ability is vital for business loan approval
Bankability is the company’s current ability to obtain financing. Sounds easy enough, right? Here’s the thing: There are more than 100 factors that affect the viability of your banking business. Some are obvious and easy to fix; Others are not very obvious and can be very difficult to fix.
The ability to finance is like a giant puzzle, but some pieces are bigger than others. If the bigger pieces are in place, the smaller pieces won’t matter much when it comes to the big picture. However, if you are having trouble with your large stakes, these little bits can make a big difference when it comes to loan approval.
So, the moral of the story is that all the pieces matter, and you need to do everything you can to make sure that every piece is where it belongs. Why are you being rejected for a small business loan? Perhaps one of the problems with financing is the cause of these problems.
6 Possible Reasons You Shouldn’t Get a Small Business Loan
1. You do not have a banking institution
The foundation of your business refers to how your business is created. If it’s not set up to be bankable, lenders will foreclose on you every time. Your business must be prepared to appear as a bankable entity separate from you, the owner. If you do it from the beginning, it will be faster and easier, but it is never too late to do it.
The bankable foundation is like a puzzle within a puzzle; It’s a big part of bankability made up of a lot of little bits. What does a banking institution consist of?
The first step in setting up a bankable enterprise is to make sure that your company has its own phone number and address. The address must be a physical address where you can receive mail – PO Box. UPS box or box will not work. You also need a business phone number listed in the 411 directory.
Employer ID number
The next thing you need to do is to get an Employer Identification Number (EIN) for your business. This is a business identification number that works similar to how your Social Security number works for you personally. Sole proprietorships and partnerships often use their own Social Security number. However, this appears unprofessional to lenders, and can cause problems when you are trying to create and build a business credit profile separate from your personal credit profile.
amalgamation or embodiment
There are many advantages to incorporating your business as a C corporation, S corporation, or LLC. It does not guarantee approval, nor does it include refusal of warranty. However, it legitimizes your business in the eyes of lenders, not to mention that it also provides some liability protection. Be sure to discuss with your attorney or tax professional the best option for your business.
commercial bank account
Having a separate, dedicated business bank account is important. Required by many lenders, it helps in general operations in many ways. You can’t have a merchant account to accept credit card payments without a merchant bank account, and it helps keep business expenses separate from personal expenses for tax purposes.
Other elements of a bankable foundation include:
- Licensing. Legally operating requires a variety of licenses. Make sure you have them all.
- website. A professional business website is important. Yes, lenders may consider. It must be hosted on a paid platform.
- Business email address. It should have the same URL as your company’s website. Don’t use free email like Gmail or Yahoo.
2. It is not established, or it is bad, that you have a Business Loan credit report
Did you know that your business can have its own business credit report? Most business owners are aware of this, but what they don’t realize is that it is very different from personal credit, right down to how you get it. It does not happen by itself. You have to work on purpose to create and build a business credit profile. The great part is that having a bankable foundation is the first step.
A business credit report is very similar to your consumer credit report. It is the details of your business credit history. It is a tool that lenders can use to help determine the creditworthiness of your business.
The major business credit reporting agencies are Dun & Bradstreet, Experian, Equifax, and FICO SBSS. Since there is no way of knowing which service the lender will choose, you need to ensure that all these reports are accurate and up-to-date.
‘Secret’ Business Data Agencies
In addition to agencies that directly calculate and issue credit reports, there are other business data agencies that can influence those reports indirectly: LexisNexis and Small Business Finance Exchange are two examples. They collect data from a variety of sources, including public records. As a result, they have access to information that you may not realize could affect your ability to obtain a business loan.
For example, data on car accidents and liens is available for lenders to see. You cannot access or change the data these agencies have about your business, but you can be sure that any new information you receive is positive. Adequate positive information can help counteract any negative information from the past.
There are other identification numbers you need in addition to your Employer Identification Number (EIN). Each CRA has a number that you use to identify your business. However, you will usually be assigned a number. One notable exception to this is the D-U-N-S number used by Dun & Bradstreet. Since it is the largest and most used CRA, you definitely need this number.
You must apply for a D-U-N-S number, and the process is quick and free. If a lender tries to pull your report from Dun & Bradstreet and you don’t have one, it doesn’t bode well.
Trade credit history
- Your business credit history is also taken into account by lenders in addition to your business credit score. They want to know:
- How many accounts reported payments?
- How long have you had for each account?
- What kind of accounts are they?
- How much balance do you use in each account for the amount available?
- Do you consistently make your payments on these accounts?
The more accounts that report payments on time, the stronger your credit score will be.
Consistency is also very important. Be absolutely certain that your business name and address are mentioned exactly in the same place everywhere. If you spell “street” once and use “ST” again, there may be a problem; If you use an ampersand in your business name in one document and the word “and” in another, this can be a problem as well. Small details can cause big problems with lenders, and can even lead to you being refused a small business loan.
why? First, it looks unprofessional. But more than that, it’s a red flag for fraud. Lenders will not take the time to research. If something looks suspicious, they will refuse the loan.
You should have the same business information everywhere. This can become especially difficult if you are already an established company trying to build a bankable foundation. When you start changing things up, like adding a business phone number or a merge, you may find it easy to miss things.
This is a problem because every year many loan applications are rejected due to fraud concerns just because things don’t match. Some of your credit accounts may have a slightly different business name or old phone number than what’s on your loan application. To reduce the chance of you being rejected for a small business loan, pay attention to these details.
3. There is a problem with the financial statements
Obviously, your personal and business tax returns must be in order if someone is going to lend you money. But there is more than just tax returns:
If you can, ask an accounting professional to prepare regular financial statements for your business. This is much better than just printing reports from your accounting system. Having an accountant’s name on your financial statements lends its reliability. Monthly or quarterly statements are great, but at least prepare professional statements annually so that you are ready whenever you need to apply for a loan.
personal financial data
Personal tax returns from the past three years are usually requested by lenders. It’s best if a tax professional prepares them, but obviously if the years have already passed and it hasn’t, you’re using what you have. This is the minimum you will need. Lenders may request a number of other documents, such as check stubs and bank statements, among other things.
4. Other offices have information about you or your business that looks bad to lenders
An example of another office that has negative information about you is ChexSystems, a consumer reporting agency that provides information on closed checking and savings accounts. ChexSystems also maintains bad check activity which will make a difference when it comes to your bank account score. Too many bad checks can prevent you from being able to open a bank account, and that will definitely look bad for lenders.
Pretty much everything else is also fair game. Do you have any criminal convictions? Do you have bankruptcy or short sale on your record? Are there any UCC deposits or privileges? All of this can and will result in the possibility of financing your business and may lead to your rejection of a small business loan.
5. You have bad credit personal
Your personal credit score from Experian, Equifax, and TransUnion can affect your business’s bankability, too. The number one way to get a strong personal credit score or improve a weak credit score is to consistently make payments on time. Ensure that you monitor your personal credit regularly to ensure that errors are corrected and that no fraudulent accounts are reported.
6. You failed the application process
Yes, even the application process can be problematic. First, consider the timing. Is your business bankable now? If not, this may not be the best time to apply for a loan from a traditional lender. Try another financing option, such as an alternate lender, as you work on fundability.
Next, make sure your business name, business address, and property status are all verifiable – lenders will verify.
Finally, choose the right lending product for your business and needs. Is a conventional loan or line of credit better for you? Would a working capital loan or expansion loan work better? Choosing the right product for the application makes a difference.
Stop being rejected for a small business loan and get the financing you need
Have you realized all the things that can affect your ability to get approved for a small business loan? If you are not in a position to obtain a business loan at the moment, there are other options such as alternative lenders. An alternative lender can help you in the short term, and if you’re building business credit in the process, it will only help your cause.
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