Business financing can be vital to launching a startup or expanding an existing enterprise. Funds are often used to rent space, purchase equipment, hire staff, secure inventory, or cover a variety of other expenses. But getting approved for business loans can be challenging. So what are some causes of not qualifying for business financing?
Why Am I Not Qualifying for Business Financing?
You’re not alone if you find yourself being turned down for business financing. It’s incredibly common because conventional lenders have strict requirements. Here are some of the most common reasons why you may be having trouble securing the capital you need.
1. Credit Score
A company with a low or no business credit score will have a difficult time getting a business loan approval. Many lenders look at both the company’s and business owner’s personal credit scores to determine loan eligibility and financing terms. If you are considering business financing, start building your credit now.
2. Short Business History
Many lenders require that businesses have a minimum business history before accepting loan applications. This is because it’s challenging to gauge a company’s ability to repay its loan if they don’t have any financial history. Fortunately, some alternative lenders will loan to startups.
3. Lack of Collateral
Lenders, particularly banks, may require that small businesses agree to pledge collateral to guarantee their loan. It could be business equipment, inventory, commercial real estate, or something else of value. If you’re in this situation, there may be other options like invoice financing.
4. Poor Credit Utilization
Potential lenders look at your business’s credit utilization when evaluating creditworthiness. If your credit utilization rate is too high, lenders will assume you are overextended. If it is too low, it appears your business isn’t experienced with debt management.
5. Insufficient Cash Flow
When you apply for a loan, most lenders will want to see a cash flow statement. This is because many small businesses fail due to cash flow troubles. If you are unable to meet your financial obligations, this is a sign you may not be able to repay your loan.
6. Risky Industry
Many traditional lenders won’t do business with companies in certain industries. A few examples include gambling and marijuana businesses due to the various regulations tied to those sectors. That doesn’t mean those businesses can’t obtain financing. It just probably won’t be through a bank or credit union.
7. Lack of Documentation
Even if none of the prior six reasons apply to you, you’re likely to get rejected for business financing if you don’t submit the required documentation to the lender. These documents confirm to lenders that you are a creditworthy borrower — bank statements, tax returns, financial reports, business documentation, etc.
Contact CAB Capital for Business Financing Options
Sometimes a bank loan is just what you need. But, if you find you’re not qualifying for business financing, you may wish to explore other options. CAB Capital has access to a variety of business financing opportunities that are more flexible and can even get you funded much quicker than a traditional loan. Contact us today for more information.