Having access to loans is important for business growth. However, it is not uncommon for banks to reject loan applications from SMEs and start-ups. As disappointing as this might be, try and find out why the bank rejected your loan application so that the next one gets approved. Here are the most common reasons why banks might reject your loan application.
Your industry is too risky
To protect themselves from losing money, banks limit their risks to businesses that are more likely to pay them back. One industry that lenders shy away from is construction. The hospitality industry is also deemed high-risk, especially now with the current global situation. If you operate in these industries, try looking for lenders that cater to your specific sector.
You do not have enough collateral
Small businesses are sometimes incapable of providing the required collateral to secure the loan against. The amount of collateral required varies from lender to lender, depending on the amount you wish to borrow. These assets act as insurance in case you are unable to pay back the loan. In the event of default, the bank seizes the properties and auctions them to recover their money.
Low business credit score
A low credit score raises red flags on your ability to pay the money back. It gives lenders a clear picture of how much profit your business makes and how much outstanding debt you have. Before applying for a business loan, try and raise your credit score first. Pay your bills, file relevant documents on time and reduce the amount of debt you take on.
Your business is new
Unfortunately, it is a lot harder for newly established businesses to get a loan. They are considered high-risk because they cannot provide evidence that they will be able to pay back the money. Statistics also show that most businesses in the UK don’t survive their first year, which makes lenders warier. However, do not let this deter you from applying for a loan. There are lenders willing to work with you as long as the loan is secured.
Rejected loan? Where to find out more
For any enquires about business financing, contact us today and let us help you grow your business.