There are a lot of ingredients that go into a successful business. You need amazing ideas, great leadership skills, good time management abilities, and creative thinking skills. But you also need money and regardless of how great you are at everything else, you won’t get anywhere unless you have the cash to get your business off the ground. So, the first step is to apply for a business loan.
Hopefully, your loan application will be accepted but there are a lot of situations where it won’t. Lenders will take a lot of different factors into account when deciding whether to lend you the money or not and there are a number of problems that could cause them to decline. Knowing what those problems are will help you improve your applications and increase your chances of being accepted. These are the most likely reasons that your business loan application will be denied.
Cash Flow And Financial Planning
Even though your business is just getting started, the lender will want an idea of how you manage your money and how you plan to deal with your finances as the business grows. They will conduct a global cash flow analysis (follow the link here for more info) to decide whether your business is stable enough to borrow money and pay it back. So, make sure that you look after your money well and you have a clear business plan in place. You need to lay out exactly how you will spend the money and what actions you will take to increase revenue and grow the business. Unless you are able to demonstrate that you can earn enough money to pay the loan back, you’re not likely to be accepted.
People don’t consider how their age impacts their chances of success when applying for a business loan but it makes a big difference. When you are considering starting a business, it’s important to be brutally honest with yourself and you should ask whether you are the right age or not. If you are over the age of 65, you are far less likely to be accepted for a loan because there are fears that you are already past retirement age and you may not have what it takes to get a business up and running. Equally, people under the age of 25 might struggle because there are worries about their lack of experience.
Your Credit History
Providing a good business plan that covers all of the financial details is important, but the lender will also want to look at your personal finances too. Before lending any money to you, they will conduct a credit check on you. If your credit score is poor, it’s very unlikely that you will be approved for a business loan. So, if you have recently had a lot of financial issues and you are in a lot of debt, now is not the time to make your application and start your business. Instead, spend some time fixing your credit score before you apply and you’ll stand a much better chance of being accepted.
These are the main factors that will cause your business loan application to be denied, so make sure you take them into account.