It was tough enough to sit there and fill out the paperwork for a small business loan. Your palms were getting sweaty, your heart rate had increased, and your hands were shaking by the time you submitted the paperwork. You smiled in the clerk and he smiled back, but you went back to your business and things moved along as they always do.
The next day maybe you received a phone call or a curt email letting you know you had been declined. It’s frustrating, especially when you need working capital. Your cash flow has been depleted and it’s making it difficult for you to pay employees, get inventory, and keep the lights on.
When you don’t understand why your small business loan was declined, even though you have almost stellar credit, it can be even more frustrating. Here are a few simple reasons why this might have happened to you at this time.
1. You don’t have enough cash flow.
One of the reasons you needed a small business loan was because of limited cash flow, but it’s like a Catch-22; if you don’t have cash flow, some lenders don’t want to loan you more. If you have low revenue and are not making many deposits, these are often considered red flags for lenders.
2.You haven’t been in business long enough.
If you’re a relatively young business (even though you’re not young yourself), that’s not going to work in your favor when seeking funding through a small business loan. Maybe your business has been successful for the first six months of its operations, but that’s not enough for a financial institution to ‘take a chance.’
3. It could have something to do with industry restrictions.
There may be industry specific restrictions that limit your ability to get a small business loan. If your business operates within an industry that has specific restrictions on loans, you may need to seek alternative funding sources.
4. Your business plan was not clear or focused.
A business plan will tell a prospective lender exactly what’s been going on, what your goals are, mission, and plan to achieve those goals. If the business plan is not well written, is not concise, or does offer clarity, there would likely be numerous questions from the approval committee about how this loan would work in their favor.
The more you understand about why you might have been declined for a small business loan, the more effective you may be moving forward and getting the funding you need.