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Reasons Why You May Find Your Business Loan Application Denied

Apart from operational and competitive pressures, the viability of your business may be challenged by many issues that make access to funds not only difficult but expensive. Even the Federal Reserve Bank of New York has observed that even though many businesses were profitable, they experienced gaps in funding that had to be met from non-institutional lenders. The lack of funds makes many businesses unable to break even and typically, many fail in the first five years. Some of the major reasons why businesses are often denied loans:

A Dynamic Economic Environment 
When the economic climate is uncertain, banks prefer to play it safe by preferring not to increase their loan exposure to small businesses that have no or little track record. Unfortunately, it is the same uncertainty that forces many of these businesses to seek funding in the first place. Small businesses may find their loan applications being sat over unduly or even rejected because the banks simply do not want to increase their loans to perceived risky companies. It may be better for entrepreneurs to access personal savings or other informal lines of credit till the economic mood receives a boost.

Insufficient Collateral
Even if the business idea and model seem to be satisfactory and both the credit score and cash flows are good enough for the loan to be granted, the banks will ask for collaterals to back their loan. These are essentially assets of the business that a bank can repossess and sell off to realize the outstanding amount of the loan in case the business defaults.

The nature of many modern businesses may mean that there are not many physical assets like machinery, equipment, vehicles, etc. Many online businesses may not even have a large office. Banks that are accustomed to lending to traditional businesses may refuse to entertain startups that don’t have too much to offer as loan collateral.

Gender and/or Ethnic Prejudice
It may be surprising that even in this day and age, loans are often denied simply because the applicant belongs to a particular ethnicity or is a female. While banks and lenders are not supposed to discriminate, statistics reveal that the rate of loan approvals is clearly in favor of white males. Women were able to get only 15% of SBA 7(a) loans even though they made up more than half of small business owners.

Males received over 70% of all loans and white males more than 53%. Approvals of applicants of minority ethnicities significantly were all in single percentage digits with the exception of Asians who got 24% approvals. There have been instances of people belonging to disadvantaged groups resorting to applying in the name of a white male as the business founder.

To better their chances of getting loans approved, entrepreneurs should not only be very clear about the viability of their businesses but also ensure that their applications are prepared thoroughly with accurate financial projections and all the typical loopholes plugged as best possible.
Reasons Why You May Find Your Business Loan Application Denied Reasons Why You May Find Your Business Loan Application Denied Reviewed by Devender Sisodia on 4:07 PM Rating: 5