Things You Need to Know About Banks Before You Apply for a Small Business Loan

Business, Lifestyle
Reading Time: 4 minutes

Getting business loans for funding your small business is actually a big step. Many people get tense with the idea of paperwork, research work, and the hassle of getting a business funding loan. But it is not that tough as it may sound to the unfamiliar. As you study a little and grow familiar with the concept, you will understand the step by step systematic approach to get your small business funded by a loan.

Banks are not the best places to get a small business loan

Often many banks reject loan applications from small businesses. To get that much of attention as a small business owner, the business must be doing exceptionally well. Unless the business is bringing great revenue with great profit margins, it may not look great security for the banks to approve a business improvement loan.

Now, does that mean you will not get a loan to fund your small business? Well, absolutely not. If you develop a broader vision to look beyond banks, then you have a whole financial market outside banks to search for loans and apply. Services like are there to help you get from many financial funding agencies for your small business loans.

But before you look elsewhere, you can definitely dig out the main reasons your small business may see the rejection of loan applications from banks and similar institutions. Knowing this will help you work on the weaknesses beforehand, and make a clean and attractive profile to become a customer of banks.

Credit history

This is an important factor which affects a loan application. While applying for a business loan, you may have a notion that the lender will view only the credit history and rating of the business. But that is not the case. Along with the business, the credit rating and history of the borrower are also equally important and noted. Hence, both must be healthy. Else, if you are into business for a very short time period, and have not developed a long credit history, then chances are high for rejection of the application.

In fact, the loan approval process gets easier and surer when the bank has more history of your account. This increases your legitimacy and creditworthiness.

Do you run a high-risk business?

There are some businesses which are listed by most financial institutions and banks as high-risk businesses. There are reasons for such tagging. And these businesses are offered a different kind of credit cards, loans, and funding, etc. The bank will go through your business profile in detail to find out the high-risk factors. Some of the high-risk businesses are online gambling, online casinos, marijuana-related products business, dating sites, and services, blockchain based sites, etc. Again if the business is getting too many complaints from customers, and have many unresolved charges against it, then also it can be deemed to be a high-risk business.

Poor cash flow history

Your credit history reveals a lot about you and the business. If the bank finds out that your business has gone through poor cash flows before, then this can be a big no for your loan application. You will not be approved a small business loan with a problem with the cash flow. Because a poor cash flow means difficulty is paying back the loan at your end, and this indicates a sick loan account in future.

Debt consolidation

A bank is not the right place to seek a debt consolidation loan for your small business. In fact, instead of getting one, you will be rejected in most places. Banks would not like to give you a loan when you already have a few loans running for the business. Loans from other funding sources than banks can often be a mess for you, which you may want to clear up and bring into one place by getting one big single loan from a bank, which you may use to pay off and close all other previous loans. But this concept will not work when you have a small business and have too many loans. Banks deem this approach to be unhealthy. They do not approve such loans, and also don’t approve any small loans too for such accounts.

What is wrong when you have everything right?

Sometimes you may have the right credit score, the business may be doing well, you may have a long credit history with healthy cash flow, and yet things may not click. It’s because you were not planned and sorted. A planned approach to loan application is a different thing. When you plan it right, you get the affirmative response. Here are some of the documents which you must arrange beforehand so that you need not sift through all files at the last moment.

  • Income tax return papers
  • Old loan documents if any
  • Business ownership or partnership documents
  • Your own financial documents
  • If the business is leased then documents of lease
  • All financial details and documents of the business

And, all these documents must be presented in original for the highest credibility.

Growth in customer base

If the financial lender or bank is not satisfied with the growth in the customer base of your small business, then they will not see the business future to be much promising so that you return the loan timely. That is why it’s important that the bank sees your business to be growing healthily with a growing customer base.

Other funding options

Banks are not the last resources for funding your business. There are many more funding resources and options. And you can get a sound idea of those when you go through legit resources and services. Small businesses can get great investments and funding based on how you plan them and whom you talk to in the regard. There are sites online which gives you multiple funding options for your business, and you must surf once before approaching the big names of banks.

You can get more information regarding funding from our blogs and articles. Stay in tune with us and subscribe us!

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