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4 Reasons Why Your Business Loan Was Rejected – And What to Do

Financing a business is risky for the parties involved, especially the funding source. Businesses are usually at a 50/50 level of breakthrough/ breakdown or even less, with the negative part getting the shorter end of the stick. That is more of the reason why strict guidelines have been imposed on the process of getting business loan approvals. However, that does not make it difficult – if you know how to go about it, that is. If you are to increase your chances of getting that business loan approved, here are some mistakes you will totally want to be on the lookout for.

1. Not Knowing Your Credit Score

Your credit score – either as an individual or business – is one of the strongest assets you can wield in the negotiation and securement of a loan. This number tells a lot about your financial life: your financial history and your tendency to make repayments on time. It also helps you know your financial standing and what steps can be taken to improve it. That is just putting it mildly though. Now, imagine how a business would fare if they didn’t even know their credit status. An MFAA accredited broker could not have put the conditions of many businesses today better when they said “I have seen cases where businesses were oblivious that they had a credit default until it was time to submit an application.”

2. Lack of Planning

There is always an assessment criterion for the granting of any business loan. Understanding what these are and preparing towards them will greatly increase your chances of securing the funding you want. The things you will want to focus on will include the debt-to-income ratio, inventory of existing assets and a justified cash flow position of the business. All of these “ensures that the lender has a full picture of what has happened and what the future forecasts are,” explains the broker. Likewise, one other important thing to note is that “business owners need to articulate how they are going to use the capital and demonstrate how repayments will be made.”

3. Bad Strategy

The type of financial approach you have embraced for your business is also key in wooing an investor. Many businesses have developed a model that allows them to reduce the taxes they have to pay while neglecting other models which could have effectively stepped up their income. An MFAA broker could not have said it better with the opinion that “While there are tax advantages, not managing your business in order to demonstrate maximized earnings can have a negative impact when it comes to applying for a loan.”

4. Not Having the Right Advice

Industry experts have, been in your shoes many times. That thus makes them the best set of people to surround yourself with if you are truly to better your chance of securing the loan. Our broker admits that “A good broker understands that running a business can leave you with little time.” However, you are not expected to do all the work. Thus, “ensuring you have someone qualified and trustworthy to do the legwork can be the difference between a success or a decline.”

If you’d also like to grow your venture through financing and proper business planning, please contact us today by emailing or call me on +61 402 042 061


*This information is not to be relied upon without speaking to your finance broker, tax agent or financial adviser.

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