Reasons Why a Business Loan Application Might Receive a Denial
For small businesses, expecting to receive the approval of the loan application to find out that it has got denied is itself a nightmare. But there are reasons why your loan application got denied by the bank. And it’s justifiable to state that performing a quintessential survey on why your loan application got denied is much required. So, what do you do next after rejecting your Canadian Business Loan application?
Given that the denial of your loan form depends on more than one aspect, it’s better first to find out why it got denied. As per the law, banks will mail and notify you why your application received a denial. And if you have seen the reason, here’s outlining of the different reasons why your business loan application got rejected.
- Due to your credit score
The most prominent reason why your loan application got rejected is mainly because of your low CIBIL score or credit score. The personal credit score factors into the small business loan, even if the company has just been in the business for a couple of years now. Just in case it becomes difficult for you to manage your personal credit, the bank may question your reliability when paying back the loan amount.
With the low credit score, the bank may be in question about your business’s financial condition that might restrict you from repaying the amount. So, brushing up on what goes into the personal & business credit score might be a great idea. This way, you will be able to understand how you get evaluated. It happens to many proficient business owners when you run a successful business but have to damage personal credits for building it. You’re not alone!
- Your Business Industry Is Risky
Banks consider some industries to be risky, especially the traditional lenders. The best example of this post-pandemic world is the restaurant industry. The fact is that during the pandemic, restaurants had an extremely high failure rate. Likewise, entrepreneurs might experience additional hurdles while getting the loan when any business operates in the vice industries. If that’s what has made your application receive a denial, investigate the lenders that specialize in the industry.
- Not enough collateral
Multiple traditional lenders need you to put down collateral to obtain the Business Loan Canada. If you lack the right kind of collateral or do not have enough of it, you can look for some alternatives.
- Extremely High Debt Utilization
Lenders want applicants to use more than thirty percent of the credit available. But if you have used too much of it, they may consider you inapplicable for the loan. On the contrary, if you do not have any debt or lack a history of using the credit responsibly, it may count against you!
So, it’s better to ensure that you keep track of the total credit limits, such as personal credit cards, business credit cards, and lines of credit, besides other credit sources. You also need to maintain reasonable debt usage too.
- Don’t Have Enough Evidence of Cash
Cash flow is another thing that lenders will look at while approving the loan for small businesses. They are eager to learn that you have enough cash flow to cover the business expenses and pay back the Business Loans Alberta timely. But if the cash flow is not enough or you experience seasonal slumps regularly, it’s a red flag.
Poor cash flow is another warning sign of why businesses fail. It may also contribute to the loan application rejection. So, you need to examine your cash management skills. You also need to use accounting software that enables you to generate cash flow reports easily. Then, you can monitor the cash flow weekly to stay on top of it.
Other signs that may lead to your Business Loans British Columbia denial include an incomplete application form, a new credit cardholder, and more.