Created on: February 12, 2013
Banks are generally supporting small businesses during times of high economic activity. When businesses prosper, they are more likely to pay off their loans and banks are fully repaid in due time. On the contrary, during tough economic times, small businesses are pretty unstable and there is no guarantee for the lenders that they will get their money back.
Reasons to be denied a small business loan
There are all sorts of small business loans (SBA) for start ups or for people who want to expand their business. When banks have high liquidity, they are more likely to lend you money. However, beyond any economic instability that may have a depressing effect on a bank’s ability to give out credit, there are more reasons to be denied a small business loan.
Can you repay your loan?
Bankers are mostly concerned with your ability to repay the loan. They go over your application and they thoroughly examine why you request credit, how you plan to use it and what do you expect to earn from your operations. Lenders take into account the amount of money you have available and any unsecured loans in order to determine the potential financial stability of your business. If they don’t feel certain that your business operations can generate the level of profitability required to meet your debt, they deny your SBA.
What is your credit score?
If your credit score is low, you are not viewed as a reliable customer by your lenders. Your ability to meet your payments is questioned and you are less likely to be approved for a small business loan. But even if you are approved, the financing terms will be highly unfavorable including high interest rates and a large down-payment.
How to be approved for a small business loan
Understanding why you were denied an SBA can help you take action. The following are tips on how to be approved for your small business loan.
Apply to many banks
Do not make the mistake to apply to one bank only. It doesn’t make business sense. Since you are looking to finance your business you need to capitalize on any available opportunity. If Bank A denies you an SBA, maybe Bank B is more flexible and has less strict credit policies. Unless your business is not viable, you stand a chance to be approved for a small business loan by a financial institution with lighter credit line policies.
Apply to specialized banks
It makes even more sense to apply to specialized banks that are familiar with your business and industry. You may contact the local
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