Many a time, business loans application are disapproved, this can be really hard for business owners as these funds always come in handy when meeting up with  financial needs of their business such as payment of salaries, purchase of equipment, expansion and so on. The reasons why business loans application are disapproved may vary from business to business. However, there are 4 common reasons why business loans applications are rejected, they include:

1. Credit Issues

Business owners must watch out for two types of credit-personal and business credit. Equifax, Experian, and Dun & Bradstreet are the 3 major business credit bureaus who gives businesses their credit report and score.

 A history of late or delayed payment, high use of credit, unpaid tax liens can result in a low credit score and also not having a long credit history can be an issue .

You can improve a low credit score by paying your bills as at when due, and keeping your account balances low will be helpful as well.

2. Insufficient Collateral

Most lenders would give out loans to those who have assets to use as collateral. These assets would be forfeited if business owners defaults in the payment of their loans. Every of your personal and business assets  such as equipment, bank accounts, real estate, vehicles, and even accounts receivable should be documented before applying for a loan, after which you will make a choice of which asset to forfeit if you default in the payment of your loan.

3. Requesting for Too Much Money

Your debt-service ratio gives an inkling into what your cash flow looks like and also it determines if you would be able to pay up your loan. The ratio is calculated by taking your annual net operating income and dividing it by your annual debt payments. Before applying for a loan, run your loan amount through an online loan calculator to ensure you’re not asking for too much.

4. No Business Plan

 One of the fundamental tools lenders use in evaluating business loan application is a good business plan as it shows that your business is a good investment. If you do not have a well-written business plan, take out time to put together a good business plan. It should include market analysis, financial projections based on your income and cash flow statements, balance sheets, and budgets and also an appendix with documentation supporting your application.

Applying for a business loan can be a bit hard atimes, but it could provide you with funds needed to grow your business. You can increase your chances of getting a loan and taking your business to a higher level by ensuring you have no credit issues, requesting for realistic loan amount and also having an awesome business plan.

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