If you’re applying for a business loan, it likely means your business is in a tight spot already. Then you receive the news that the lender has denied your application. Getting rejected is not only disappointing, but it can significantly impact your business.
First, it’s important to know that you’re not alone. The position you find yourself in is incredibly common. Businesses are rejected for financing each and every day across the globe. In Singapore, banks say they reject approximately 80% of small and medium-sized businesses.
Of course, as reassuring as this is, you still need cash to cover costs, fuel growth and seize opportunities. The next step to take is to understand why you’ve been rejected. Here are a few common reasons why your business might’ve been turned away.
Poor or (no) credit history
The most common reason a business owner might be turned away is a damaged credit score; this could either be a bad business credit score or a poor personal credit score. A business credit score is an indicator of whether your business is a good candidate to loan funds to and is determined by many factors, including legal filings and repayment histories.
Many business owners don’t realize that banks also consider their personal credit score when determining if a business is likely to pay back debts on time. Small businesses are often closely tied with their owners, so banks look to the individual’s personal credit score to understand how he or she handles their financial obligations.
Limited time in business
If your business is new, this can put you at a disadvantage. Your business may not have sufficient time in business to build the good credit history lenders want to see. Lending money is risky, so banks take all the steps and precautions they can. This is why most banks have a stipulated requirement of how long they want a business to operate before they are eligible for funding.
Lack of a clear business plan
Your business plan is your roadmap to success. It not only helps you lay out your big plans, but it also shows lenders and investors your vision and how you intend to reach it. It describes in detail how you plan to grow your business and which strategies you will use to get there. A lack of a strong business plan will greatly reduce a lender’s confidence and cause them to reject your application.
These are just a few of the reasons why you might be struggling to secure the cash you need to operate smoothly. If you’ve been denied, make sure you also consider whether or not you’re applying with the right lender for your business type and industry. There are many alternative lenders out there today that specialize in working with specific business types and industries and can help you get the funds you need quickly. Many of them are also willing to work with businesses that struggle to secure funding elsewhere because of bad credit, limited time in business, etc.
Ultimately, understanding and improving your business’ position and researching all your options will greatly increase your odds of securing financing
Find out why your small business was denied for business funding. Learn how to improve your chances of getting the funds you need quickly.