Why Do Bank's Say No?

Bank Loan denied

December 2014

Why Banks Reject Loan Applications

For small business owners looking for a loan for their growth it can be very difficult to find a financial partner. Unlike invoice factoring, it is very difficult to get the approval for a small business loan (under $250,000) from a bank. In fact, it is a very lengthy and complicated process. There are some common themes which can prevent you from getting the funds from a bank, which you need for your business.

Bad Credit/ Zero Credit

If you want to get a business loan, you should have a sound financial background. In simple words, it is very important to have a strong credit history. Strict credit eligibility can create a lot of problems for start-ups as they have to depend on the initial finances. If you are a budding Entrepreneur, your credit history may not be good enough to get a loan from a bank.

Inadequate Collateral

Unfortunately, lenders won’t put their money on risk without a promise of reimbursement. Make a collateral document with a list of all the items that you offered as collateral i.e. both personal and business assets. Price depreciation also has a bad impact in the collateral.

You Have Too Many Bills

If the business firm is already in debt, or has some other loans to pay, or probably in a financial crisis, lenders won’t offer any fund. Paying the loans and maintaining the lines of credit is essential. Banks have very conservative ratios that must be met to fit in their approval box. It is one of the most important factors which determine whether you are eligible for the loan.

A Poor Business Plan

Do you have a marketing strategy for your business? If you don’t have a strategy, chances are that no bank or lender would offer a loan. Business strategies which are weak or not properly planned won’t be approved. This is an important factor to consider, and a lot of planning and research can help you come with the best business strategies that can help you make profits in the long run.

Cash Flow Problems

No bank or lender will help you with funding if you have serious cash flow problems. If a business has failed to make any profit, lenders consider it risky. Banks and most traditional financial institutions may have the opinion that your business may not be able to pay the loan since you have not earned enough money. Even when you are enjoying high profit, banks may not approve the loan, as sometimes they check how old or well-established the company is.

Why is Factoring So Easy?

Thanks to Invoice Factoring! Despite poor credit or other factors, small businesses still get funds. No matter how many times banks or financial institutions rejected your application; you can still qualify for factoring as it is a single invoice loan (one at a time). Why this is KISS (keep it simple with sterling) is we verify the goods or services are rendered and the third party debtor is satisfied and willing to pay. This reduced the risk in the transaction and allows Sterling to fund invoice after invoice with a high confidence and injecting the much need cash infusion into the young or rapidly growing business owner’s hands.