What To Do If You Can’t Make Your Business Loan
There are a lot of moving parts to make a loan from your business. You have to meet all of these requirements and you need to do it fast. But not every company manages to obtain a business loan, even if they need it badly. In this article, we will go over some reasons why a business might be denied a loan, what you can do to avoid being denied, and what alternatives to business loans are available for the companies.
Why Can You Be Denied A Business Loan?
Some lenders might not approve your loan if they feel like you don’t have enough experience or collateral to back up the risk on the loan. Other reasons include poor credit score, lack of collateral, too much debt, and low cash flow.
Some loans also require a minimum cash upfront investment before getting funding on a personal note which will take time for some people before they’re able to pay back their loan. Below there are the main reasons why business loans can be denied.
Poor Credit Score
If you have a poor credit score, that is going to make getting a loan really hard. You can look into amending your credit score, but this takes time. You want to have a good credit score for a business loan of any size because of the collateral required and the fact that you need a good relationship with your lending institution.
Lack Of Collateral
You must have some kind of collateral for any type of loan from your business especially if the lender feels like you don’t have enough cash flow or experience in running a business. You can look into other options if you don’t own any assets like borrowing someone else’s assets like a business partner.
Too Much Debt
If you already have a lot of debt, it is going to make getting another loan really hard. You will be expected to make payments on your existing debts and having another could make it impossible for you to do so if the lender feels like you don’t have enough cash flow or experience managing your finances on top of your debts.
You can talk to your lenders about doing a debt restructuring agreement so they will extend the payback period, but the interest might increase on this type of personal loan as well as collateral requirements.
Not Enough Cash
If your business doesn’t have enough cash flow, you might not be able to get funding through a personal note. You can look into other options to improve the cash flow of the business because this is an essential factor in obtaining financing. If you can show that your cash flow will increase, then it is likely that they will approve your application for a business loan.
Improve Your Chances To Make A Business Loan
Improving your chances of getting a business loan includes finding opportunities to increase the business’s cash flow or finding another way to make up for collateral requirements if there are any. You also want to work on your credit score because this is the top reason why people aren’t approved for business loans.
Improve Your Credit Score
You can improve your credit score by making payments on time, making sure you are not late or sending payments to an outdated address, paying off debts, and getting a copy of your credit report from the three major credit bureaus (TransUnion, Experian, and Equifax). You can also make sure that all of the business assets you have are covered with insurance and have a legal name change if you feel like your name needs to be changed.
Increase Your Cash Flow
The best way to improve your cash flow is by increasing sales or increasing the revenue you get from one existing customer. You can also sell some of the assets that you have to generate additional cash flow, but this will probably cause you to be taken off the active loan borrowers list if your business does not meet their requirements for this type of loan.
Alternatives To Business Loans
You can look into Personal Loans, Merchant Cash Advances (MCA), Equipment Financing, and Bank Loans, in addition to doing a debt restructuring for repayment plans that extend over a more extended period or lower interest rates. Personal loans are commonly given out by banks or other financial institutions that are based on your credit score, income, and collateral, just like business loans.
MCA’s are given out by financial institutions that fund your business with cash advances for future payment to the lender after selling items to customers, just like bank loans. Equipment financing is used for equipment purchases (furniture, computers, or other related purchases), and it is usually backed up by collateral like stock certificates or real estate property.
Personal loans can be obtained from lenders who are usually backed up with your income and employment status (check your credit score). They can also apply for bad credit personal loans $5000 TheGuaranteedLoans. You can also get a personal loan from your bank or credit union for this type of loan.
Merchant Cash Advances
This is like getting a cash advance with credit card benefits, but you need to show that you have enough sales to meet the lender’s requirements in terms of performance requirements. You can borrow money in small chunks, and it’s based on your sales just like bank loans for business owners who have positive cash flow from their businesses.
This is a type of financing that is backed up by collateral, just like business loans, but the amount you get is usually less than what a business owner would get from a bank or other financial institution. It allows you to purchase equipment (furniture, computers, etc.) and pay it back with either one-time payments or every month, usually paid in advance with your sales.
The Bottom Line
Business loans are still an option for small business owners, but it is harder to get one than it was a few years ago because of the fact that people took out a lot of personal loans and didn’t pay them back. Some lenders still offer business loans, and they require collateral like real estate properties or stocks and bonds to get one. You can also look into getting a personal loan or MCA if you don’t have enough collateral, but this will cause your interest rates to go up.