6 Factors That Can Keep You From Getting a Small Business Loan

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Most small business owners will seek a business loan at some point to grow their business. In her article on Businessnewsdaily.com, Paula Fernandes provides 6 factors that can keep you from getting a small business loan:

1. Credit history
All lenders look at credit history when measuring a borrower’s credibility. The borrower’s credit history will reveal how diligent the individual is at repaying debt.

When a borrower has a low credit score, high credit card debt or a history of missed or late payments, getting a loan can be extremely challenging. The borrowing club can help secure loans. The borrowing club reviews state that the company provides personal and business loan consulting, advice and assistance to people looking for unsecured personal loans.

Paul Steck, former president and CEO of the international franchise restaurant Saladworks, has worked with hundreds of small business franchisees, many of whom have not so good personal credit as a result of illness, divorce or other extenuating circumstances. Steck says, “sometimes, very good people, for reasons beyond their control, have credit issues. And, unfortunately, that’s a real barrier to entry in the world of small business.”

Before applying for a small business loan, make sure your credit is in good standing.

2. Limited cash flow
Lenders want to know the borrower’s cash flow before issuing a small business loan. Cash flow is critical because it proves that a business is healthy and that the borrower can keep up with the repayment of the loan.

“Really thinking through that cash-flow equation is like preventative medicine for your business,” said Jay DesMarteau, head of regional commercial specialty segments for TD Bank. “You can either wait until your business gets sick, or you can do things to prevent it from getting sick.”

Before applying for a small business loan, get your business into a position with healthy cash flow.

3. Lacking a plan for the future
When a small business owner doesn’t have a plan for the future of their business, it shows that they don’t have a plan for the repayment of a small business loan.

“Banks require that business owners have an organized, detailed and quantitative business plan in order to move forward with the loan process,” said David Goldin, CEO, president and founder of Capify, an alternative small business lender. However, Goldin noted that it’s common for very small businesses to not have a formal business plan or any plan at all, for that matter. In these situations, he recommends that business owners at least forecast their future earnings before applying for a loan, so lenders will have an idea of your profitability.

Having at least a minimally detailed business plan will greatly increase your chances of getting approved for a small business loan.

4. Disorganization
A disorganized borrower that approaches a lender seeking a small business loan may appear less serious and driven to be successful in their business.

“One of the things that can be a problem when applying for a loan is if business owners don’t have the documentation that the bank will require such as back tax returns,” Steck said.

Before approaching potential lenders for a small business loan for your business, make sure you’re organized and have gathered all documentation that the lender may require.

5. Failing to seek expert advice
Lenders like to see that a small business owner applying for a loan has thoroughly planned and sought guidance from knowledgeable advisers.

Stephen Sheinbaum, CEO of alternative lender Bizfi says, “there are many places to find good people to talk to, such as the Service Corps of Retired Executives (SCORE), a free mentoring service that is supported by the Small Business Administration. SCORE connects you with retired business people with experience in your market. This is important because they will know about the kind of capital that is most important to people within your industry.”

For your best shot at being approved for a small business loan, seek expert advice prior to meeting with potential lenders. It will show them that you’ve done your homework and are prepared.

6. Apathy
“Too many business owners approach lenders with an apathetic attitude,” Steck said. They simply don’t demonstrate why they, rather than someone else, are a good candidate for a loan.

“You have to exude a passion,” said Steck. “I’m going to do this, and I’m going to be the best in the whole wide world. You have to go into it with that sort of mentality, and a lot of potential borrowers don’t do that.”

Having the right attitude when approaching potential lenders will greatly increase your chances of getting approved for a small business loan.

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