Whoever you turn to for a business loan is not going to look favourably on an investment that they can’t see a return on, so it’s your job to convince them that you have what it takes to succeed.

Criteria Lenders Look For in Your Business

In particular, here are a few criteria that lenders will be on the lookout for:

• Have you drawn up a comprehensive business plan, complete with a summary of your operations and your projected earnings and outgoings for the next two to three years? Preparation is key.
• Market awareness. Similarly, you’ll want to include a rundown of the size, demographic and growth opportunities of your target market, as well as the state of play regarding your competition. What sets your business apart? Sell yourself.
• Remember to make clear what you need the loan for and how it will affect your business. Whether you want to take on more staff, move to a bigger office location or expand your customer portfolio overseas, it’s imperative to stress the value in this transaction – for both of you.
• Credit rating. All the business acumen in the world won’t win a loan if you have a poor credit history – after all, the shiniest colander leaks just as much water as the shoddiest one. Sort out your finances before you lay out your aspirations before a lender.
• Cash flow. Again, you’ll need to show that you’ve not only managed your debt repayments in the past, but that you’re well equipped to do so again. Accurate data on your revenue and outgoings (both current and projected) is vital to breeding confidence in your business.
• If you already have substantial assets belonging to your business, a bank will be more inclined to look favourably on lending you money than otherwise. This can act as a guarantee that they can recoup their outlay in the worst-case scenario.

Tick all the boxes on this checklist and you stand an excellent chance of being approved for credit from any lender you approach. However, the economic slump of the last decade has meant that more and more people are turning to alternative finance solutions to obtain the funds they need to help their business realise its full potential.

With that in mind, just remember that there are plenty of other options out there if the traditional route doesn’t bear fruit. Asset finance, peer to peer and crowdfunding are all increasingly popular methods of alternative finance that may well be right for you… and the criteria listed above will be just as beneficial on those fronts, as well.

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It can be really discouraging to have one or more applications for finance rejected, and not only that – it can harm your chances of lending from other financial institutions too. Always check the eligibility criteria, and don’t apply unless you know you tick all the boxes. Different lenders have different criteria, so shop around to find the right lender for you who is most likely to offer you a loan.

There are many reasons why a finance application isn’t approved – it could be a basic issue with paperwork, or the lender may think your business is too much of a risk. Many people are confused as to why their application was rejected, and it’s important to find out the exact reason from the bank. Here are some of the most common reasons why business loans are rejected.

Bad Credit History

There may be something in your personal or business credit history which has flagged up and caused the lender to be cautious. It’s a good idea to find out your credit score and get a copy of your credit rating before applying for any type of loan. There are various steps you can take to improve your credit score, and sometimes these small actions can make a big difference.

Cash Flow Issues

All businesses have ups and downs, and you may have seasonal fluctuations in revenue. However, if you have ongoing cash flow problems and spend a lot of time in an overdraft, this can signal that you can’t yet manage loan repayments. Finance is often refused if lenders don’t believe a business is in a strong financial situation.

Short Trading History

Because banks are being extremely cautious and limiting credit at the moment, they are not considering start-ups or fairly new businesses. They want to see years of financial records, so if you’ve only been in business for a year or two then this could be the reason why the lender has considered you as a risky investment.

Just because you’ve been rejected by the mainstream banks doesn’t mean you no longer have access to finance. There are many other options to explore, even if you are have a short trading history or an adverse credit history. Talk to our alternative finance advisors today to discuss the options open to you and your business.

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High street banks have a set of tough criteria for businesses who apply for a loan. Small businesses have a huge struggle with traditional business loans, and with a long application process it’s extremely frustrating to be turned down. It’s important to know what lenders are looking for, and whether it’s worth processing an application for a business loan. Here are some common reasons why your company may not be eligible for a business loan from a high street bank.

You’re a start-up or new business

If you’ve only been in business for a short time, then you won’t have the evidence that most banks require to take your application further. Lenders need to reduce their risk, so if you can’t prove that you can pay back any money you borrow then you are likely to be refused a loan. Obviously, start-up companies find this very difficult because they won’t be able to prove how much turnover they will be making. Banks usually have a minimum trading time for business loans, usually one or two years, so always check before starting the application as you could be wasting your time.

High risk industry

Sometimes you may be unfortunate in the sector you choose to operate. Banks view certain industries as high risk, and therefore don’t offer loans to businesses in these industries regardless of other factors. Conventional lenders will have varying terms on their restricted industries but you may find that car dealerships, nightclubs and fitness studios are classed as in volatile industries and therefore high risk.

Low credit score/bad credit

One of the most important elements of criteria to meet is the credit check. Banks will look at the credit history of both the business and you individual credit, to search for red flags. How you manage your personal financial commitments can give an indication at how well you manage the business finances. If you have adverse credit history then take steps to remove these from your credit report, and ensure the business isn’t taking on too much debt.

Not eligible for a bank business loan? Take a look at our alternative finance solutions, some of which are suitable for high risk businesses, start-ups and bad credit history.

The post Reasons Why you May Not be Eligible for a Business Loan appeared first on Genie Lending: Business Loan Alternative Finance Specialists.