Nowadays, it is almost impossible to run a small business with money from your own pocket. Whether you want to employ new staff, buy inventory, or maximize business territories, every type of business requirement needs additional working capital. Let’s accept the fact that it is becoming highly tough for small business entrepreneurs in order to secure finance through a bank makes it, in fact, more challenging as well. There are a lot of reasons why traditional lenders like bank hesitate and refuse to consider loans for small business owners.
We have listed the top 5 reasons, alongside discussing why alternative lenders like Indifi can be more helpful for small business loans.
- Lack of collateral
A secured small business loan should be backed by collateral. The loan amount which you can borrow depends on the collateral’s value. Assets make the lending procedure more secure for the lender. If a borrower cannot pay back the loan, the lender can sell the collateral to someone else. In case you just have set up a new business and don’t have such assets which you can showcase as loan security, financial institutions might refuse to accept your business loan application.
- Poor credit score
Traditional institutions like banks monitor your personal and business credit scores prior to going for a lending process. You must have a good credit score to avail the loan approval. A poor credit rating can possibly result in loan application refusal. In case you are applying for a small business loan having a poor credit score, you will need to pay a higher rate of interest on the loan. Hence, you are suggested to check your eligibility criteria while applying for a loan to abstain from such issues.
- Inadequate cash flow
Lenders need to ensure that you are enough able to repay your loan every month, on top of being capable of covering payroll, rent, inventory, and other costs. Hence, in case you are investing more money every month than what is coming, then you have to fix that cash flow issue. The simplest ways of solving all cash flow problems are to institute late fees, invoice promptly, reduce unwanted costs, and get an emergency fund from an alternative lender like Indifi.
- Inadequate operating history
Traditional lenders prefer businesses with sufficient and lengthy track records. After all, they don’t wish to finance a business which has been operating for a few times but has not sustained a specific amount of credibility and success. Banks, in fact, want to see a solid track record of creating profits over a particular time span to finance. With no such solid operating track, a small business loan will possibly be rejected.
- High-risk industry
Some business segments are riskier than others. Albeit your business might be running successfully, a lender might reject your loan application if you belong to a high-risk industry. For instance, restaurants hail from high-risk sectors because of excessive levels of competition. In such condition, lenders might prefer to ignore your industry.
What If You’re Loan Application Hasn’t Been Granted
It’s really annoying to face a loan application rejection when you need additional funding for your business operations. However, if it happens, don’t get disappointed. Find out the reasons behind this rejection. If possible, correct all mistakes and reapply for the same. Concentrate on building a good business credit score prior to applying for your next business loan. Also, check your personal credit score for attaining complete credibility. In addition to this, look for an alternative lender like Indifi that has some feasible funding options for small businesses like you.
Indifi offers small business loans without any collateral. No matter whether you belong to a high-risk industry, you can avail your loan. Also, you can avail the loan with a nominal rate of interest and long-term repayment policies are also there. So, to avoid loan application rejection, choose an alternative lender like Indifi.