And what you can do to solve them!
One of the most important, and at times difficult, parts of owning a business is obtaining lending. This can be especially difficult for first-time business owners. A study in Spring of 2015 showed that of the businesses owners who were denied, nearly 23 percent weren’t even aware why their applications were denied. Sometimes the reasons for denial can be remedied. Here is a list of the most common reasons why a business application for funding might be denied.
Cash Flow
Simply, a lender wants to ensure that their loan will be paid back. If the business is spending more money each month than they are making, this will impact a lender’s willingness to loan money to that business.
Examine cash flow before applying for applications and try to find areas to increase it where possible. Finding expenses which can be cut or reduced is one of the easiest ways to increase cash flow. A B2B business dependent on their accounts receivable may consider pursuing an accounts receivable line or facility. Companies often offer loans based on a businesses’ AR – read more about AR Factoring here.
Time in Business
Lenders make most of their decisions based on the history of the business, if a business is brand new they don’t have any history to review. This makes the venture high risk, and lenders are less likely to feel comfortable loaning or advancing funds to a new business.
Ensure you are paying any current creditors on time and keeping expenses low. Showing a high deposit and low cost while in business is a high indicator of a business that can pay back their loans. After a few months your business will have a good history to follow and will increase the chances of getting a loan.
High Current Debt
If a business already has multiple loans, MCAs, or leases, it’s much harder to get another lending source. Even if the payment history is solid, multiple loans can decrease cash flow and suffocate a business.
B2B businesses might not know about a new program in the financing sector – AR Consolidation. Capital Partners Network exclusively offers a new program based on accounts receivable which can lessen the overall cash flow drain of MCAs and short-term loans, while increasing available working capital. Learn more here.
Use of Funds
If a lender doesn’t understand what the money is going to pay for, they may be more apprehensive about lending. Simply, if the purpose of the borrowed funds is not to grow the business or increase profitability lenders will view this request as higher risk. Make sure your business goals align and there is a proper plan for the use of funding. This will increase the chances lenders will feel more comfortable.