Why Banks Decline Business Loans

Small Business Loan Approvals

It used to be by no means easy for smaller business owners to get loans when they needed them the most and it has solely gotten tougher since the 2008 credit crunch.

If you were counting on that small commercial business loan to assist your small enterprise to grow, however the financial institution said “no.” If it makes you feel any better, you’re not alone as there are many SME business owners in the same position.

Over the closing couple of years, major banks have been lowering the quantity of loans that they’re issuing to small Australian businesses. This may also be because of, slower demand, stricter lending requirements and higher fees have put a lid on small business funding” following the 2008 economic crisis. Banks have become more selective in their approvals and only source the cream of the crop when looking at business loan applications.

Major Banks are just more vigilant since the 2008 recession, to some degree because of policies about small business lending to establishments that are considered risks. Regrettably, this includes small businesses since many don’t have the demonstrated track record of established or larger businesses.

Nevertheless, getting your loan application rejected is never fun, even if the instances are out of your control. That’s why you it’s important that you find out exactly why your small business loan was declined in the first instance so that you can make sure it does not happen again.

Occasionally a bank will share these details with you, however if not, then it’s typically for the following reasons:

  1. Bad Credit File

Personal credit file is one of the first things that lenders will check when going over a small business loan application. A good credit score establishes that the small business owner has appropriately managed their personal and business finances with their creditors by making all of their commitment payments on-time.

On the other hand a poor credit score, however, can make lenders cautious since it establishes that the individual was unable to meet the financial obligations that are included in the loan agreement whether it was their own wrong doing or not. This is the number one reason why a major bankwill likely reject your business loan application.

Bear in mind, a bad credit file (particularly defaults related to financial establishments) on either the business owner or the business can really impact your business chances of business finance approval.

  1. Business Monthly Cashflow.

When assessing a business loan application, major banks are looking to whether that businessis and will have enough cash flow to make their daily or weekly loan repayments in addition to covering their everyday ongoing business expenses. The best source of this information for the lender is through their business trading statements.

Many small businesses (particularly retail & service industries) struggle to keep enough money in their bank accounts even when they are profitable, often because they have to pay 3rd-party suppliers upfront before they get paid for their product or service. The trading statements need to confirm regular monthly credited income that will be supportive for any additional business loan obligations being applied for so that banks won’t reject your application due to servicing.

Many business owners simply don’t understand the correct processes involved when applying for an unsecured business finance to establish a better probability of getting approved for a loan when they go it alone. If you fall into this group please contact Business Loans Australia for their professional assistance with small business funding options.

For more information on fast small business funding click here.

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