Whenever we think of starting a business or expansions, business loan comes as an ready alternatives. Trouble-free and simple financing methods provided by various financial institutions such as banks have made process of commencing a business quite easy. It is a known actuality that a hefty sum is a necessity for the purpose of setting up any kind of business.
Businessmen consider the financial institutions who act as lenders to be their last resort to fund their intended projects. In such instances, any sort of rejection from the lenders is measured to be a huge setback for turning the plan of their business projects into reality. It needs to be stated in this regard that the banks or financial institutions are found to reject business loan applications owing to certain reasons.
A primary reason for turning down business loans has been identified to be the credit scores which are learnt to be below average. A below average credit score implies an unsatisfactory credit history. In other words it can be stated that credit history provides a picture of the present as well as previous credit association of a particular person with his/her lenders. A positive association or credit score implies well-timed and complete repayment of the earlier as well as present debts. The aspects of payment record, amount of debt borne, steady cash flow as well as secured form of assets are also taken into deliberation by the lenders, the absence of which leads to loan rejection at times.
Hence, great credit ratings, strong credit profile and solid finances needs to be ensured in order to avoid business loan rejections. And the simple way to maintain good credit rating is to service you loan regularly.
Another reason which reduces the comfort of banks or financial institutions while lending for any project of business is the feasibility of the project. The projected profits or cash flows should be sufficient to generate cash for the business owners after servicing the debt. A too futuristic or far off profit projections raise doubts on the overall feasibility and perceived as risk while lending. The not so good may further deteriorate with ups and downs of specific industry or the overall economy. Also, new technology or innovation from the competitor may put a question mark even on the payback.
The reputation of the business owners and their capability to make business succeed is a big consideration. The credibility gets established only with track record of current business and its profitability numbers. A businessman already grappling with current business competition and issues may be consider as weak contender than the one with owner of well establishes and smoothly running business.
It is always advisable to hire a consultant who may have an outsider view on the business or project for its viability before presenting it to bankers. As such it reduces the chances of rejections. Remember, all such rejections goes on record with your banker and might just impact your future applications as well.
