Financial Institutions while providing loans need to judge the business owners on various parameters as they are providing money as the product and if any of the parameters is not appropriate for the business loan then they are not willing to take the risk to give loans. Many times it has happened that if any of the eligibility criteria parameters have been compromised in providing a loan, then the customers who are unable to pay the loan, become delinquent and it tarnishes the image of the financial institutions in front of the investors. Now, we will discuss the various reasons for which the business owners, do not get business loans:
Insufficient or poor credit
There are the majority of small business owners, who are not eligible for the business loan as they have a very low credit score and it is a result of no credit history of the business owner or he/she has never taken a loan from a bank or any other financial institutions. The poor credit is the result of the multiple loans taken by the business owners and they have missed the installments of those loans. When the installments are not paid on the due date and if there is a long delay then it harms the credit score of the business owner and makes it difficult for him or her to take the business loan in the future
If the business owners have existing debts or multiple loans then the financial institutions analyze the income – debt ratio which means that if the income is high enough that the person can manage the additional loan then the business loan is provided, otherwise, if the income is unable to cater to the existing debt then the loan is not provided to the business owner as of the chance of loan delinquency increases
A fixed chunk of customers
Those business owners who have a fixed number of regular customer and are unable to attract new customers such as boutiques, restaurants, pubs, etc. are not viable options for the loan lenders to provide a business loan as the owner doesn’t have a growth attitude and lacks customer diversity
Inconsistency in cash flow
Banks or financial institutions shy away from those businesses that do not have the regular and consistent cash flow required to meet all the liabilities with the loan expenses.
The majority of the business loans get rejected by the banks or financial institutions only for the main reason that the business owners don’t have enough collateral to provide to the bank
Particular industry being down
In the case of the scenario where the business is currently operating in an industry that is down or in a bad condition then the lenders do not want to risk their money in that industry as the chances of non-repayment from the business owners increases.
If the business owner doesn’t want to provide personal guarantees for the business loan then it is not provided as it is one of the most important criteria that need to create confidence in the business owner. If the business owner doesn’t provide the personal guarantee then it makes the lending institute skeptical of the business owners capability of paying the loan
Lack of quality management
If the team of the business owner running the business lacks managerial qualities like leadership, negotiations, etc. then it doesn’t impress the lenders to shell out money easily and it becomes a herculean task for the business owner to extract money from them.
Business owners should understand that just the need for a business loan will not fetch them a business loan, hence they have to make themselves worthy and prepared when they are looking for a business loan. Hence they have to at least keep the basic requirement to be properly checked while applying for a business loan so that they are confident about the chances of getting a loan.
Even after having the basic requirement to be appropriate, the loan application gets rejected, then find out what was the reason behind it. It is very important to know the reason for the loan being rejected. Many times banks refuse to give loans for small reasons.
The alternate ways the business owners can raise money are through crowdfunding methods, ask family and friends to contribute to their business or they can use a credit card for catering to the smaller expenses, etc.
It is important to remember that once the loan is rejected, do not apply to the bank, again and again, as many times your credit rating also decreases due to the application being rejected. For small business loan amount the business owner can apply for a business loan from ZipLoan as the eligibility criteria for applying for the loan is not complex and difficult and many small business owners get the business loan with the low credit score.