Getting a business loan should be straightforward – it’s usually just a matter of talking the facts and figures through with your lender. But sometimes, things go wrong, and for reasons that often aren’t immediately apparent they say ‘no’. It can be a worrying turn of events, but there are a few reasons why it might have happened.
Before we go into those though, the first thing to do is simply ask the lender why they’ve turned you down. Don’t take this initial explanation on face value – if their explanation doesn’t make sense to you for any reason, ask, and keep on asking, until it does. It’s their responsibility to make their reasoning behind the rejection clear, so don’t be afraid to push them.
Beyond their initial explanation, there could be a number of other possible reasons why the lender has rejected your application.
Your cash flow isn’t good enough
Your cash flow is a useful barometer of your financial health for lenders – it’s basically an indication of your ability to pay off your existing loans and whether you’re going to be likely to pay off the new one you’re asking for. Lenders will want to take a look at your financial records to see evidence of this – and if they don’t like what they see, then that could lead to a ‘no’. They might also take the wider view of your industry as a whole, and use this kind of analysis to look at the likelihood of whether you’ll be able to pay them back in the long term.
Your credit score is low
Your business has a credit score, just like you do as an individual. It’s another key indicator for potential lenders when they’re considering your application, so make sure that you do your research by checking your score with Experian or Equifax. And if it’s not quite there, then work on it – by cutting your debts, paying your bills on time and not borrowing from too many different lenders.
You haven’t been operating long enough
You can’t blame lenders for being cautious – so many businesses fail within five years that it makes sense that they are shy of handing money over to new companies. So, they’ll want to see a proven track record of success – if you’re still finding your feet, then they may well steer clear.
It’s also possible that they’ve already seen plenty of businesses in your industry fail, particularly if you operate in a sector that they would deem risky, such as the restaurant trade. So many open, and then close again shortly after, that lenders are rightly cautious of investing their money in them.
Ultimately, preparation is the key. Ensure that your business has an impressive history of being able to pay back any money that has been put into it, and study market trends in order to cushion you and your business against any future bumps in the road that might put potential lenders off.