For so many small and medium-sized (SMB) business owners across Canada, securing a business loan from a bank is like pulling teeth. It’s a painful experience that often leads to disappointment. Why is it so difficult to get approved?
The business hasn’t been operating for very long.
Most banks want to see a company’s history of success. It helps them to feel confident that they can lend money to it. How long has your business been open? For the majority of new business owners, securing business loans is very difficult. Startups don’t have the longevity necessary to convince loan officers to trust that they can repay their loans. As David Goldin points out on BizJournals.com, banks give preferential treatment to businesses with lengthy and significant track records.
“After all, they don’t want to fund a business that has been operating for a while, but hasn’t sustained a certain amount of success and credibility,” he notes, “Banks demand a solid track record of generating profits over a specific time period in order to receive funding. Without that solid operating history, a SMB will make likely be rejected for a loan.”
Bad personal credit.
If you have a poor personal credit score, it will not help your company’s chances of securing a loan. Naturally, a bank’s loan officer will want to see signs that you are trustworthy. Does your credit history reflect missed payments and/or defaults on loans with other lenders? If so, you won’t likely get your loan application approved.
“Your personal credit score from Experian, Equifax, and TransUnion can all affect the fundability of your business as well,” informs Faith Stewart on AllBusiness.com, “The No. 1 way to get a strong personal credit score or improve a weak one is to make payments consistently on time. Be certain you monitor your personal credit regularly to ensure mistakes are corrected and that there are no fraudulent accounts being reported.”
Insufficient collateral.
What are you going to put on the line in the event you can’t repay your loan? In not so many words, a bank’s loan officer will ask that question. Collateral can take the form of a major piece of property like your home, vehicle, machinery or even the business itself. Are you willing to forfeit collateral as a form of insurance to the bank that you won’t default on a loan? If so, you will be more likely to have your loan approved. If not, you’re likely to be denied.
“For SMBs, lack of sufficient collateral excludes them from obtaining financing because loan applications usually include a request for a viable piece of collateral in order to complete the transaction and receive funding,” informs Goldin, “That’s not a problem for large businesses that own property or other big ticket assets, but it can be an insurmountable hurdle for SMBs.”
What can you do to rebound from your bank denying your business loan application?
Contact Divvia! Our merchant cash advance program provides fast, easy, and secure working capital for any business need. Our funding platform works with the vast majority of industries including new businesses, and business owners with credit issues. Financing options are simply based on your monthly debit and credit card sales with no upfront applications or fees. For more information, call us at 1-877-748-2884 or send us a message on our Contact Us page!
