There are no two ways about it – securing the required capital to finance or support a small business can be frustrating.
You have total confidence in your company’s long-term outlook, but getting any viable lender to take you seriously can be tricky to say the least.
And when application after application gets rejected, you begin to feel as if you’re banging your head against a brick wall.
On the plus side, there’s a simple explanation why this is the case in most instances. So if you’re reeling from the kind of rejection you really hadn’t expected, there’s a good chance your application failed for one of the following reasons:
Your credit score isn’t up to scratch
Make no mistake about it – your credit score matters. With almost every type of unsecured loan, your credit score will dictate the outcome. In fact, most lenders check applicants’ credit scores before anything else and won’t read a word further on their application if the result is negative. You need to take your credit score seriously – just as most lenders do.
You applied for the wrong type of loan
That said, there are plenty of financial products available where credit scores don’t factor into the equation. Bridging loans, development finance and secured loans in general – all typically secured on existing assets and therefore rendering credit scores redundant. Always remember that there are far more avenues to explore than traditional business loans and credit facilities.
Your business lacks cash flow
It’s not enough to know that you can comfortably meet all repayment requirements as set out in the terms of the loan you apply for. Instead, you need to convince the lender that you’re in an ideal position to repay the loan. All they’ll be interested in is how your cash flow looks after factoring in living expenses, operational costs and so on. If there’s even the slightest sign of a potential cash flow issue, it’s game over.
Limited collateral
Back with secured lending, it’s up to your lender to decide if and to what extent the collateral you can offer has any real value. Regardless of your own perceptions, it all comes down to their own interpretations. From property to business assets and so on, you need to think carefully about the value of the collateral you can provide and come up with a realistic maximum sum you’ll be permitted to borrow. Arrange a consultation with an independent broker for advice on the best way to approach this kind of borrowing.
Your business is at a very early stage
More often than not, traditional lenders won’t hand a penny over to borrowers they feel bring any real risk into the equation. Which is precisely why those with early-stage businesses and startups are regularly turned down by banks without a second thought. Regardless of the future outlook in your own mind, the small and early-stage nature of your business will likely prove off-putting for banks in general.
Too much debt
Last but not least, it could also be that you are simply carrying far too many debts as it is. Getting by in business often means living with a certain amount of debt at all times. It’s almost impossible to operate without some kind of borrowing or credit services coming into the equation. But at the same time, debt that’s excessive or seems to be heading continuously in the wrong direction can be very off-putting for banks. Not to mention, highly dangerous for your business.