It may be hard to believe but banks do still lend to some businesses. Here are 5 reasons your bank denied your small business loan.
5 Reasons Your Bank Denied Your Small Business Loan
No one likes rejection. It stung when the cheerleader said no to a date in high school. It stung when you didn’t land that dream job out of college. And it stings when the bank says no to a business loan. But every study over the last few years puts you in good company. Banks deny far less than half the loan applications from small business owners, and worse, most just won’t even take the application. Here are 5 reasons your bank denied your small business loan, and how you can still get business funding.
You never focused on you business credit.
Many small business owners use personal credit to run their business. However, this could put you at risk. Additionally, today many lenders are moving away from relying on personal credit alone when judging a business’s financial health, since personal credit is not considered an ideal predictor of business behavior.
Businesses receive credit scores the same way private individuals do, but business credit reports go by a 0-100 scoring system. Factors that go into a business credit profile include how often you pay your bills, credit history, and your available credit. Most lenders consider a score of 75 as “good” and anything less may make it harder to find a business loan, but there are no particular cutoff scores. Your business credit is linked to your Federal Tax ID. More Info on Business Credit.
Lack of Collateral.
Banks require collateral – physical property that can guarantee a loan if it’s not repaid – before they agree to make a business loan. This often means cars and homes. But maybe you don’t have enough equity in either? Or you rent? If you don’t own anything that is valuable for the bank, then it’s likely you’ll be denied.
Lack of Preparation.
Getting bank funding for your small business is a paperwork nightmare. You can’t walk into a bank, fill out some paperwork and hope to hear back soon. Before applying for a bank loan, businesses should have a written business plan, certified and audited financial statements, financial projections, personal and business credit reports, complete tax returns, bank statements and more.
Cash Flow Difficulties.
Obviously, the bank wants to insure it will get paid. If you build swimming pools in the north, you have cash flow problems in fall and winter. In fact, most small business do have slow periods. And the bank will look very hard at that. That’s another reason banks like to see a far number of years under your belt before applying. The irony here is “cash flow” might be why you walked into the bank in the first place. And lastly…
It’s Really Because You are a Small Business.
Perhaps the very biggest reason bank lending to small businesses has slowed to a crawl is that it’s simply not as profitable for banks as it used to be. Lending to small businesses in the lower dollar range is too costly and risky for banks. Simply put, the cost to process a $50k loan is comparable to a $500k loan, and with over half of small business owners looking for loans below $100k, well….you can see the problem. Your loan is too small.
Now that you can see why your bank denied your small business loan, what are the options?
Elan Capital Inc. offers small business loans throughout Texas.
We’re different from a bank in that we completely eliminate the mountains of paperwork, long waiting times for approval, and stringent payback policies. Whether you choose one of our Merchant Cash Advances, a Business Loan, a Business Lease, or a Line of Credit, our financing programs are an easy and fast solution for small business owners here in Texas looking for credit.
And we differ from the “online lenders” that you never can sit down with and speak to. How do you find the right solution without a dialog?
With offices in Dallas, Houston, San Antonio, El Paso, Austin and Lubbock, an Elan Capital specialist can help you get the funding you need to grow your business.
The First Step is to Call Us.