The approval rate for small business and bank loans is barely over 15%, which means numerous well-meaning and potentially wildly-successful businesses are not getting the funding they need to operate. In many cases, these rejections are the result of a fairly obvious red flag for traditional lenders, such as a low credit score or not enough business income, but others may be a little less well-known. On this blog, we take a look at five reasons why traditional financial institutions (such as banks) may reject your loan application.
You Have a Lien on Your Business
There are two types of liens that can limit your access to traditional financing options or cause your application being rejected: a tax lien and a UCC lien. A tax lien is levied on your business if you don’t pay your taxes in full and on time and fail to arrange to pay your debts. A UCC lien is a lien that can be filed by your bank or lender to put them first in line to your property rights in the event of a default. Both of these are intended to allow institutions to recover money they are owed, but traditional lenders or banks can still see them as a potential red flag that can slow your loan approval down significantly. At Green Ocean Solutions, we have options for business owners who, despite having these liens placed against their business, may still have access to working capital.
Your Business Is Too High of a Risk
Every type of business is classified under certain numbers by either the Standard Industrial Classification (SIC) or the North American Industrial Classification (NAICS). If a lender sees numbers that indicate your business is a “high risk,” they could reject your loan application. Some examples of high-risk businesses include restaurants, real estate investment, and the travel industry. Fortunately, we specialize in providing working capital to small businesses within virtually every industry as long as there are steady deposits coming in to the business checking account.
You’re Using Real Estate as Collateral
There are two reasons your real estate can be rejected as collateral, thus leading to your loan being denied: you have a mortgage on your property (which forbids it from being used as collateral), or you have not received an adequate appraisal. Most banks and financial institutions require that they possess a recent appraisal from a third party in order to determine if they can accept it as collateral.
Your Bank Statements Don’t Reflect Your Revenue
If you’re looking for a short-term loan of 18 months or less, your lender will likely request to see your financial statements from the last three months. If you run a seasonal business, your income numbers will likely be much lower during your slow period than they would be at your peak. Therefore, you want to apply for your loan either during your peak season or just after it to prove you can pay back the loan.
You’re Asking for Too Small of a Loan
Initially this may seem counter-intuitive, but you have to remember that banks are businesses, and are in business to make money, exactly like you are. Banks and lenders have fixed costs when they give out a loan that they must recuperate in order to make a profit. If you’re asking for too small of a loan, especially for a short-term loan, then the interest they make may not pay for their expenses in giving you the loan. However, this does not mean that you should take a loan larger than you need; you will be paying more in interest on money you didn’t actually need in the first place. Instead, look for a lender who will give the loan you at the amount you need.
At Green Ocean Solutions, we strive to help small businesses grow and flourish into profitable ventures. Getting a small business loan can be difficult, especially for those with sub-par credit or limited history. We are willing to get you the cash you need to help you grow your business, thanks to our fast application process that can get you a decision in as little as 24 hours. We can help you get the funds you need with flexible payment options and assistance from funding specialists.
To learn more or apply for a loan, call Green Ocean Solutions today at (888) 997-2179.