We at DCF Loans recognize how upsetting it can be to have your application for small business financing denied. Nobody wants to request money and then get told flatly, “NO!” However, this happens frequently to small and medium-sized businesses, so try not to get too discouraged. There could be several reasons why your loan application was denied, but instead of giving up, attempt to figure out why so you can make sure your application gets accepted the next time. Understanding business finance will equally enable you to nail down the reasons why your loan was rejected. Understanding the nuances of small business loans is crucial for navigating the complexities of financing and increasing your chances of approval.
1. You Applied For A Small Business Loan With A Traditional Bank
If you have applied for a loan and have been rejected, you may be wondering why. Banks are usually compelled to recommend you to an alternate provider and to provide an explanation for their decision. The program was created to assist companies that were having trouble obtaining funding and is intended to increase SMEs’ access to financing.
The Bank Referral Scheme came about as a result of data indicating that SMEs typically visit their primary bank when looking for financing; however, most of them give up on the process of getting funding instead of looking for other solutions if they are turned down. rather than sticking to your traditional bank, you may be better off going to another institution that can give you the type of loan you require to expand. With alternative lenders, there are many benefits that banks can’t offer, such as more flexibility with repayment terms, more attractive interest rates, both secured and unsecured lending, plus specialist loans for your industry.
2. Your Small Business Is Not As Established As Some Lenders Like
Many SMEs are unable to meet the strict lending conditions that traditional banks have implemented. Because of the difficulties hundreds of SMEs faced in obtaining capital when it was most needed, the alternative finance industry saw tremendous expansion. The good news is that small businesses are becoming more aware of their options beyond their existing bank. Some businesses get a “No” because they are not established yet and these banks prefer companies that have been existing for 3 or 5+ years.
However, just because your company is fresh to the market does not preclude it from obtaining funding and while it may be difficult for your SME to obtain extremely cheap rates on unsecured loans, there are lenders out there who are more than happy to deal with recently established small businesses by providing secured commercial loans.
Additionally, bridging loans can provide a quick financing solution during transitional periods, ensuring your business stays fluid even when awaiting longer-term funding.
3. Your Credit Rating Is Less Than Favorable
When a business credit rating falls below what the lender is satisfied with, they tend to reject their request. Before giving a business a loan, most lenders review their financial history to determine whether they are creditworthy or not and this determines whether or not they can obtain a loan. Because it provides less risk to the lender, firms that do not have a history of defaulting tend to benefit from extremely competitive rates. Corporate loans are another avenue to consider, especially for established businesses looking to expand or consolidate debt, even when facing a less favorable credit rating. If you have a bad credit rating, here is how to improve your credit score.
A few easy ways to build your credit score are as follows:
- Take out some business loan or overdraft and repay it to improve your credit rating.
- Always pay bills and credit on time.
- Close accounts you no longer need.
- Do not make multiple credit applications at once and leave some time before making another application if your loan application gets rejected.
- Open a business bank account in the business’ name.
- Ensure that you have your accounts audited at all times.
4. Your Market Is Deemed High Risk
Certain industries are considered high-risk by certain lenders and are, therefore, typically shunned. This is particularly true for conventional lenders. One market where many lenders prefer not to lend is the construction sector, and the recent collapse of Carillion has just made an already precarious situation much worse. However, if lenders view your industry as risky, you don’t have to give up on getting financing at this point. Specialized packages created specifically for these types of enterprises are provided by alternative lenders. Our Construction Finance offering provides a tailored financial solution for contractors and subcontractors in the construction industry.
5. Your Business Is Facing Cash Flow Challenges
Unbelievably, cash flow problems are a common occurrence for firms. Unfortunately, SMEs that are unable to demonstrate a robust cash flow may find their applications for commercial loans rejected. You will have a serious problem and won’t be able to get finance if your expenses are higher than your income because lenders will want to be confident your business can make regular repayments once the loan is approved. One excellent strategy for keeping a healthy cash flow condition is accurate cash flow forecasting. 82% of the harsh outcomes faced by insolvent companies stem from a cash flow difficulty. But if you invest the required time, energy, and focus, you can produce accurate cash-flow forecasts that can guide you through difficult circumstances.
6. You Don’t Have Enough Collateral
It’s possible that your application for a small business loan was turned down because you didn’t have enough collateral to use as security. Lenders should utilize assets as security for the money they lend, and small and medium-sized businesses are frequently denied loans because they lack sufficient collateral or are unable to furnish the kind of collateral needed by the lender. This is an important part of your core loan terms, especially for business loan agreements.
To obtain a commercial loan, collateral in the form of real estate is not always necessary, though. Our invoice finance facility can be the ideal answer to your funding needs if your company doesn’t have any real estate, either residential or commercial, to utilize as leverage. You can utilize the funds to address several issues, like cash flow issues, fight late payments, and even postpone raising equity. The loan is secured by your unpaid invoices.
There are several reasons why your business may be denied a loan. However, DCF Loans employs a practical and transparent process that enables you to borrow between $100,000 – $1 million AUD. You can choose from a range of loan types tailored to your business, provided you meet the necessary requirements before applying. At DCF Loans, we offer a straightforward and transparent lending process, helping your business make the right investments and scale effectively.
