A lot of small businesses have to deal with cash flow issues at the beginning. This is also the time when it’s more difficult to get financing. If you’re a new small business and you have exhausted all of your options, you might feel discouraged. However, you must understand why you were rejected so that you can present yourself as a better candidate next time. Here are some of the most common reasons why small business loans get rejected.
A lot of people still seem to think that traditional bank loans are the only way to go. However, there are so many options out there for people looking for financing, and some cater specifically to people in your situation. You should compare business loan options and look at things such as invoice factoring and financing, business lines of credit, and more. You might be able to find a product you’ll be eligible for without knowing it.
You might think that your credit situation is making it impossible to get a loan, for instance, but you could still be able to get invoice factoring. This is because the credit of your debtor will be the main determining factor. So, look at what’s available and what would need to be done for you to be accepted.
You need to understand that your business needs to have some sort of history to get a loan. There’s no way of telling your ability to repay without it. Some lenders won’t need as long of a history, but they will need to see something.
If you’re still new, you will have to take the steps necessary to build your credit. The first thing you will have to do is get your D-U-N-S number. You will then need to open as many accounts as you can with this number and use them wisely. If you can’t get a regular credit card, get a secured one. Open accounts with suppliers and make sure they report activity.
Also, look at alternative lenders. Many of them will look at things such as your accounts receivables and cash flow to assess if you qualify. They will also tend to put less importance on your credit score or how long you’ve been active.
You also have to know that some industries are less favorable than others for lenders. You might be in an industry that a lender considers risky, and they might refuse to lend you money based on this alone. Your best bet here would be to get grandfathered by someone who has a personal relationship with a community bank. This could be an entrepreneur you know. These banks will often be more flexible. Online lenders are another option you should consider as some will specialize in specific industries and yours could be on their list.
If you have recently had a loan rejected, these could all be some of the reasons why. Do everything you can to position yourself to be attractive to lenders and act as responsibly as possible with your accounts if you want a better chance at getting accepted in the future.