Why Banks Deny Loans to Small Businesses

Starting a business is one of the most rewarding, yet difficult endeavours to undertake. The road to profit is very challenging. Business owners need a great deal of money to launch their venture. They depend upon commercial lending for financing. However, many times loan applications are rejected by banks.
Here’s a list of reasons a business loan can be rejected.

  • Bad credit

    Even though not everyone has the best credit, as far as lenders are concerned, this just isn’t an excuse. Poor credit is simply a sign that a borrower, or their business, does not prioritize repaying their debts. Credit score of the borrower is very important criterion for money lenders to decide whether to accept or reject a loan offer. Most banks typically won’t loan to a business owner whose personal credit score isn’t above a certain threshold (typically about 680).

  • Not enough collateral

    All business loans require collateral. Unfortunately not all businesses have sufficient collateral to support the size of the business loan they wish to borrow. Another obstacle is the price depreciation of certain collateral. Know the value of your collateral before you ask the bank for the loan.

  • Under-capitalization

    Borrowers often make the mistake of under-capitalizing their business loan application. Your personal and professional resources including fixed assets, retained earnings, and the even an owner’s equity, can be attached if required to secure repayment of the debt. Do your homework; know what capital you have on hand. Know what you can pledge and use to grow your business and repay the bank’s loan.

  • Cash flow problems

    Lenders see no reason to offer money to a business that has serious cash flow problems. Banks want to see that businesses have enough money to make monthly loan payments in addition to covering rent, payroll, inventory and other costs.  After all, if a business isn’t even making money to begin with, then there is no need to hand it a business loan in the hope that is generates growth. There has to be adequate cash flow available to repay a loan. Most bank term loans are not ideal for start-ups or very young businesses. They typically look for a few years of revenue generation. Start-ups can apply for SBA loans (which are loans made by a bank with a portion guaranteed by the US government). Most large banks have SBA loan departments, so be sure to check with your local branch.

  • Lack of preparation

    Many businesses simply aren’t savvy about the application process and believe they can walk into a bank, fill out an application and get approved for a loan. Before applying for a bank loan, businesses should have a written business plan, financial statements or projections, personal and business credit reports, tax returns and bank statements. They should also have copies of relevant legal documents including articles of incorporation, contracts, leases, and any licenses and permits needed to operate.

  • Difficult conditions

    Even if a business has excellent collateral, credit, and is well run, there is still the possibility that it will soon face industry-specific difficulties. For example, a lender may be hesitant to lend a business loan to a transportation company in the wake of rising fuel costs. The lender may expect that the soaring costs of fuel are just going to overtax the transportation company and make it difficult to grow or generate a profit. Outside influences are always considered prior to a loan approval or decline. They can include industry experience of a borrower, a business’s location, local or regional economic trends, competitors etc. In addition to these, seemingly unrelated factors, such as local climate conditions, may also influence an applicant’s approval or denial.

These reasons are warning signs to look out for on the road to getting a business loan. Even if borrowers achieve success and borrow business loans, they still have to successfully run their business and payback their lender. While not all ideas need financing to get started, getting a business loan is a great aid to launching a new company.

Tech Tools for Small Businesses

tech-tools-for-small-businesses

Starting a new business can be tough, as obstructions you never imagined crop up. Limited time, manpower, and budgets can all be a factor as the workload starts to pile up and the bills come rolling in. With the right tools, small businesses can reach their potential. Below is a list of tools that small business owners can utilize.

1. For organization and productivity –

    • Google Drive – lets you store and access your files anywhere–on the web, on your hard drive, or on the go.
    • Trello – Visual project management system
    • Expensify – financial services startup that provides an online expense management service for customers worldwide.
    • Evernote – A suite of software and services that allow users to capture, organize, and find information across multiple platforms.

2. Cloud storage –

      • Dropbox – Provides a home for users’ most-important information.
      • Google Drive – lets you store and access your files anywhere — on the Web, on your hard drive, or on the go.
      • Apple’s iCloud – a mobile- and Web-based application that enables its users to store their information.
      • Microsoft OneDrive – A storage application that enables users to store and share photos, videos, documents, and more.

3. CRM tools –

  • Salesforce – A global cloud computing company that develops CRM solutions and provides business software on a subscription basis.
  • Act! – To organize customer details, increase productivity, and drive results.
  • SugarCRM – enables businesses to create extraordinary customer relationships with the most innovative CRM solution in the market.

4. Email marketing/marketing automation –

  • MailChimp – an email marketing service that helps businesses with newsletters, automated messages, and targeted campaigns.
  • Constant Contact – provides email, social media, and event marketing tools to help small businesses grow their customer base.
  • Emfluence – lets you create, deploy, and track multi-channel online marketing campaigns from one place.
  • InfusionSoft – provides sales and marketing automation software for small businesses that combines CRM, email marketing, and e-commerce.

5. Social media and content tools –

  • TweetDeck – A Twitter tool for real-time tracking, organizing, and engaging on Web and mobile devices.
  • Sprout Social – provides a platform for businesses to manage social media engagement, publishing, and analytics.
  • Buffer App – helps users share social media content by scheduling online posts throughout the day.

Don’t Let Your Business Ideas Bite The Dust

Don't Let Your Business Ideas Bite The Dust

Make enough research and be ready to take your idea to drawing board, ensuring success for your start up requires tremendous effort. Get expert advice from team Gongzuo and let your business idea be a success.

Read more for Business Ideas: https://www.thegongzuo.com/Do-not-let-your-business-ideas-bite-the-dust