The lending process may be complicated and frustrating for small business owners especially when they don’t know how to go about getting the loan they need. Admittedly, no one wears rejection well so when small business owners applications for loans get rejected, they can’t help but be depressed and wonder why they are not getting that loan.
The truth is that no lender is out for charity; it’s all business so they need to ensure that they have a profitable bargain. These are four out of the many reasons why loan requests are being turned down.
Many a times small business owners are not decided on how much it is they need. Indecisiveness stems from inability to separate want from need. When you are dealing with ‘wants’, the amount you end up requesting for tends to be so much that your proposal ends up rejected. Learn to make your proposal bearing in mind what your needs and priorities are. Also ensure that you clearly state these priorities are and how they will result in your ability to repay the loan.
Lenders want to be sure that there wont be future complications so they want to enter an agreement with someone who knows and understands exactly what they are getting into and may be a reason you are not getting that loan. Before even applying for a loan from a lender, try to understand all the logistics and figure out if you will be able to abide by the terms and conditions. Find out the Annual Percentage Rate (APR), the fees, prepayment penalties, and any other information you deem important. In addition, try to communicate your understanding to the lender in a clear, concise manner.
Underestimating smaller banks
Small business owners assume that big banks are the ones with the big bucks. However true this is, you must be willing to accept that with their bigger bucks they would like to make bigger investments which do not necessarily mean small businesses. Small banks are more likely to lend to small businesses than bigger banks so dont underestimate them. Compare their conditions, repayment options etc. and you may surprised that the so-called ‘smaller banks’ are actually more flexible.
Cash flow and credit quality
You need to have a clear understanding of your financial situation, what you can set as collateral, and prospects of cash inflow. Lenders tend to reject proposals or applications from people who cant project steady cash flow or people who dont have valuable collateral. Your collateral should be closely commiserated with the amount you intend to take as loan.
All in all, if you’ve been rejected before, try to figure out the reason you are not getting that loan and address that reason before applying elsewhere.