3 reasons your business loan was declined
The UK Government has made their feelings known and that banks need to do more in bringing financial relief to help out businesses
Despite this, the reality is that many businesses will see their loan applications denied and most will suffer devastating repercussions.
There are a number of reasons why a business loan may be denied. The following are three examples of some common mistakes a business can make when they apply for a loan.
If you are in the market to apply for a business loan, you can begin by educating yourself on what mistakes others have made in the process and how you can learn from them.
Poor record keeping
One of the first things a lender will look at is the way a business has handled their financial accounts. If a lender sees that you have been late or have missed payments, or you’ve exceeded your credit limits, it will lead them to think your business is a risk and may cause your application to be denied.
Managing your business finances well and making sure everything is paid in a timely fashion is extremely important. You need to be fully aware of when your payments are due and how much money is to be taken out at that time. It’s also imperative that you have enough funds in your account to pay your bills. If you find that you are unable to pay off an account, contact your bank beforehand and let them know your predicament. Your bank may be able to offer another resolution to your problem or increase your credit limit.
It’s surprising the number of loans that are denied because the lender couldn’t get a handle on the actual nature of the business based on the information that was provided to them. If you are going to apply for a loan, make sure you are prepared and have a thorough business plan in place. If you know of any problems or concerns that may be a deterrent in getting a loan for your business, address them ahead of time with your lender.
Regardless of how successful a business is, a lender will want to verify that they have sufficient cash flow coming in to the business to pay their bills.
To improve the amount of income you have coming into your business you may want to try the following tips:
Keep accurate records of your inventory and when it’s time to add to your stock, only order what you actually need. Most businesses make the mistake of not keeping a close watch on the amount of product they have in-house and adding to it when it isn’t needed.
Make sure to invoice your customers immediately after a sale. Delays in getting out your invoices will result in late payments to your vendors.
Finally, offer incentives to customers who pay on time. For example, customers who pay within ten days could get a 1 percent discount off of their invoice. This will improve your cash flow significantly.
An important tip
Besides avoiding the three major mistakes that were mentioned above, the one last tip you should be aware of is to understand your loan application requirements. This is critical in getting your loan approved and shows the lender that your business is prepared and knowledgeable.
If you want your loan to go through, it’s recommended that you sit down with your lender and discuss everything that you will need to put together before you apply for the loan. Ask if there is anything more you can do to increase your chances of obtaining the loan. Most lenders are happy to offer their recommendations so ask if there is anything more you can do to ensure that your loan is successful.