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Reasons Your Business Loan Was Rejected

As a new business owner or you wanted finance support from a bank, it can be devastating for your business loan to be rejected. What your next step will depend on the reason your loan was rejected. There are numerous likely reasons why the loan was rejected.

Incomplete application

This is the most suspect reason for an automatic decline of your loan application. Paperwork which is done right is a vital requirement for all the loan applications. This is because this is the information the bank relies on when giving you the loan. So if you did this wrong, your loan has to be rejected. If this happens to you, you can review your application and reapply for the loan. You should, however, find out from the lender whether that was the case before simply reapplying.

New in business

Most of the traditional lenders like banks heavily rely on your business’ records when giving out a loan. If however you are starting up a new business and you need a business loan, they may not risk giving it to you. If therefore, you are a new business owner and your loan was rejected, this may be the reason for the rejection.

In order to go about this, you may choose to borrow a loan from the online lenders who do not necessarily need the business banking records before approving your loan.

Cash flow problems

After loan application, the lender reviews your documents which you submitted as well as the forms you filled. One of the most critical things thing the lender looks at for already running businesses is the cash flow. This will show the lender whether you will be able to repay the loan or not.

If you have bad cash flow, your loan will most likely be rejected. To determine if your cash flow is bad, the lender checks your business expenses and the expected loan repayment installations against the revenue collected. If no amount remains after the deductions are made, then your cash flow is bad, and this may be the reason your loan was rejected.

Bad credit score

If in the past you delayed or had problems settling other loans and hence have a bad credit history, your loan was likely rejected because of this. This is especially the case if you had requested the loan from traditional lenders such as a bank. The solution to this is to consider online lenders who are more understanding and can approval you a bad credit business loan.

Risky business

If you are applying for a loan for a business in which the lender especially a bank considers it to be in a risky industry, your loan may have been declined due to that. The solution to this is for you to find either online lenders or go for specialized lenders that target your kind of business.

Lack of collateral

Some of the traditional lenders are strict on the collateral requirement for a business loan. If you did not clearly attach documentation on your collateral then that is the likely reason your loan was rejected. If this happens to you and you don’t have collateral that you can borrow the loan against, you can try online lenders. They are usually lenient on this, and they can approve your loan if you meet their terms.

Wrong lender

Another possible reason your loan was rejected is that you may have chosen the wrong lender. How does this happen? Some lenders usually have their target market for their loan products. This means they have decided to serve an only a specific group of clients, for reasons best known to them. If you may have chosen one of these types of lenders and you don’t belong to the said targeted group, then the reason your loan was rejected was that you chose the wrong lender. You should, however, find out from the lender whether that is the case.

Wrong loan option

Sometimes it happens that you choose a wrong loan option. An example of this is, you may have applied for a short-term loan instead of a long-term one. If this happens, the lender may reject your loan application. This is usually so because whenever you apply for loan, you must explain what the loan will be utilized for. If the lender finds out that there is an inconsistency between your applied loan type and the intended use, then he/she may reject your application. The lender may further go ahead and advice you to apply for a loan option that best suits you.

This calls for doing due diligence before applying for a loan. After deciding the amount to borrow, how to utilize it and the repayment plan, you should sit down with the lender and find out about the best loan option for you to avoid rejection.

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