Top reasons business loans don’t close

FAQ Frequently asked questions on top reasons business loans dont close

What are the main reasons businesses get turned down for a loan?
The main reasons are low revenues, bad credit, short time in business, type of business and
not being able to satisfy closing requirements
We are trying to get a business loan and have been turned down by banks. Are there other
loans we can get approved for?
Yes, there are several other loans you can get approved for after banks would not approve
you or other lenders would not close the transaction after making an offer
Our business got an offer for a business loan but the lender would not close it. What is the difference between an offer and an approval?
An offer is less formal than an approval. An offer allows the lender to back out of the
transaction easier and is less of a commitment. An approval is more concrete. If the borrow meets the closing requirements the lender is compelled to close and fund the transaction. Some business lenders have moved towards issuing offers instead of approvals to make it easier for them to change course on the loan.

Top Reasons business loans don't close

Today we will consider the top reasons business loans don't close.   We will review the most common reasons and how to avoid them.    Applicants can get their loans closed by preventing these problems.

Not having enough business revenue

Businesses that do not have enough gross income or net income. If a business' income is not enough it may not have the minimum in sales to qualify. Lenders are concerned if a business has enough net income and cash flow to pay a new debt on top of their regular expenses

Not being able to Prove Ownership

Business owners sometimes have trouble with proof of ownership of their business.    The Secretary of State often lists the Registered Agent and Officer, but does not list or clarify who the owners are.   Officers to not have to be Owners of the business.   Another problem is that ownership percentage is not not listed.    Owners often have to provide their Articles of Incorporation or business license to prove ownership, which many times they do not have on hand.

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Not being able to provide proof of the existence of the business

Some States do not require a business license to operate a business.   The owner will operate the business in their personal name and say they run a business.  They will not be able to get a business loan because they cannot prove the existence of the business the way Lenders require it.

Cannot prove time in Business

Businesses often begin as a Sole Proprietorship or Partnership and Incorporate later.
When this happens, the Secretary of State will only show the time in business since the time of the Incorporation.  The time the Company was a Sole Proprietorship or Partnership will not be added.
For example, if a Company was Unincorporated for 3 Years and has been incorporated for 2 Years, it will only show on the Secretary of State as 2 Years Time in Business.   If the Company wants credit for the full 5 years, they should provide the business licenses since it began as a Sole Proprietorship.   Lenders will give the Company credit for the full 5 years.

Top reasons business loans don't close
Top Reasons Business Loans Don't close

Business Account balances are too low or overdrawn at the time of closing

After a business is approved for a business loan, their Business Checking account may be reviewed before closing.  This will include a review of the current balances, the Month to Date balances, NSF's and Overdrafts within the last 30 to 60 days.   If these are too many NSF's and overdrafts, the Lender may withdraw the approval.   Review your balances and activity to make sure this will not impact your approval.

Cannot pass bank verification

Many business loans require a verification of the business bank account.   This is often done through 3rd Party Vendors such as DecisionLogic, and Joinme.  Bank verification can also be done through phone verification.

The business cannot provide all of the documentation required in the closing stipulations.

Business loans have a list of closing requirements that have to be met. If the applicant can get most of them but not all of them, they may not be able to close the loan. If you fall short in getting the Documentation required to close a business loan, talk to the Lender about what is missing. You may be able to get the remaining items waived. Another option is to provide substitute information.  Many times alternatives to what was asked for may be accepted.

Avoid these problems and you stand an excellent chance of having your business loan close fast.

10 Most common Reasons businesses want a business loan


Businesses want money for many reasons.   This post will look at the 10 most common reasons businesses want a business loan and some of the best programs for them.  If your business needs a loan for any reason, complete the application information below.

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10 Most common reasons businesses want a business loan

1) My business is running out of money.

Very often, businesses do not need money for a specific reason.   They just are running out of cash.   Seasonal businesses often have this problem.  Sometimes revenues do not meet business expectations while expenses remained fixed.   The business may have run into problems and needs money to correct or resolve the problem.

2) I need a business loan for expansion.

One of the top reasons businesses need a business loan is for expansion.   There are many reasons for expansion.  In most cases, a successful business wants to take advantage of business opportunities but needs more money to do it.

3)  I need a business loan for taxes.

Customers frequently make the request, “I need a loan to pay business taxes”.
Many businesses need a loan to pay taxes.  This is often
for current taxes, previous taxes as well as IRS payment agreements.

4) I need a business loan to hire employees and meet payroll.

Another reason businesses often need capital is for the initial expense of hiring employees.  This often includes the cost of expanding the workspace, buying furniture and also the cost of recruiting, interviewing and adding employees to the employee rolls.     Many businesses fall short on their cash flow at times and look for ways on how to get money for payroll.

5)  I need a business loan for inventory and raw materials.

Businesses often need funding for inventory and raw materials.   Business
owners need specialized funding for this purpose.

6)  I need money for Equipment, Equipment Repairs or Vehicles.

Businesses often call in with the request, “I need a business loan for
equipment”, as well as “I need a business loan for equipment repairs”.   This would
be considered a loan against equipment.

7) I need a business loan for Marketing and Advertising.

Companies frequently need a business loan for Adverting and Marketing.  Advertising is more critical for certain industries than others.   Industries that need advertising, such as media companies, retail and online businesses have to spend significant funds on
advertising.

8) I need a business loan to buyout my Partner.

Businesses will often request a business loan to buy out another partner.   Multiple owners are no longer able to get along well enough to continue running the business together.   Callers will call in saying:  “I need a business loan to buyout a partner owner.”

9) I need a business loan to buy a Building and Real Estate.

When businesses become larger, they not not want to keep leasing space.    Landlords may also suddenly raise the rent.    Callers most frequent requests are: “I need a business loan to buy a building and property”, or “I need a business loan to buy my building.”  For this
purpose, callers say they need an asset based loan.

10) I need a business loan for insurance.

Businesses may need to pay for several types of business insurance.
Liability insurance, employee insurance and property insurance are some of the types of insurance businesses must by.    Callers will also call in and say: “I need a loan for business insurance”, as well as “I need a loan for business health insurance.”

FAQ Frequently asked questions on the 10 Most common reasons businesses want a business loan

Why do businesses need loans to borrow money for?
Businesses need loans for many reasons. For example, common needs are working capital, expansion, taxes, to hire employees, payroll and inventory. Other reasons are equipment, repairs, vehicles, advertising, partner buyouts, rental leases and insurance certifications.
Who needs a business loan?

Businesses of all types need business loans, including large and small businesses, start up and new businesses for instance. Businesses are often better off financing specific needs instead of using cash on hand they may need suddenly or for an emergency.
What can you use business loans for?
Business loans can usually be used for any legal reason. If a lender does not want your business to use funds for certain reasons, it will usually be stated in the contract or they will tell you.
What can a business not use a loan for?
Businesses cannot use a loan for illegal purposes. It is also common for a lender to restrict a business from using a loan for specific reasons. For example, a lender may not allow you to use a business loan for personal reasons. If a loan is made to purchase an asset such as equipment or real estate, the loan must be used for that reason and cannot be for anything else. The lender may even pay the seller directly instead of sending funds to the borrower to avoid monies being used for other purposes.

My business is running out of money
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I need a business loan for expansion
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I need a business loan for taxes
Need a business loan today to pay taxes? Apply now. Fast solutions to pay Federal taxes and State Taxes.

 

 

Thank you for visiting our list of the 10 most common reasons businesses want a business loan.

Top Reasons for going out of business

Is your business having severe problems and is going out of business?   Below are the Top Reasons for going out of business followed by the complete list.

You can take fast, easy, and efficient steps to avoid going out of business.    This may include securing working capital to bridge the difficult period.    We have numerous options for all business situations.
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Top Reasons for going out of business

1. Running out of Money.   Running out of money is probably the main reason for going out of business.   There are different circumstances under which businesses run out of money.  The business is going through a slow period.   Revenues have been low since the business opened.

3.  Too much debt and overhead.   The owners or the business itself may have too much debt and overhead to deal with.   They can’t handle it and go out of business.

4.  Insufficient starting capital.   Many businesses never really had enough capital to start.   Often there are problems after opening.  This is followed by the business not having enough capital to overcome them.

5.  Unable to get financing or enough financing.   Many businesses need working capital or other types of business financing after starting.  Some of these needs are critical.   If they cannot get the financing needed for equipment or short term working capital, the business may not survive.

6.  Not enough back up capital or emergency capital.    Business owners have liquid assets and net worth.   If the business needs more working capital than

7. Bad Employees.   This is usually employees that are bad performers with low quality work and low production.   Some employees are out sick on leave a lot.

8. Bad Marketing and Sales.   Some businesses have owners with expertise in certain areas.  They may have technical but not sales and customer service.   These other areas can be crucial to the survival of the business.

9. Inflexible ownership.   This is resistance to change or new ideas.   Many business owners have aggressive take charge personalities.   This is often what drives them to accomplishing starting a business.   It can hurt some business owners significantly.  Many business owners are not open to new ideas or alternatives different than the ones they believe in.   They are often very resistant to criticism.

10.  Market changes.   Businesses need to keep up with what is happening in their industry and stay up.  Some businesses show poor awareness to market trends and changes.

11.  Not keeping track of competition.   Businesses that do not keep track of what the competition is doing may be left behind.    Competitors may introduce new products, programs and incentives.

The reasons listed are usually the top reasons for going out of business.  Some solutions and ideas are offered to avoid going out of business.   If your business is closing, the SBA offers a list of items to consider when going out of business.

 

 

 

Top 6 business loan decline reasons

This article will focus on the top 6 business loan decline reasons and several easy things you can do to prevent many of these declines.   Use the following list to increase your chances of getting approved for a business loan by avoiding the decline reasons listed.

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Don’t let your business get turned down for any of these top 6 business loan decline reasons.

1. Derogatory Personal Credit

Poor, damaged, or delinquent personal credit  of the owner is the main reason for being turned down for a business loan.  Most businesses are less than 35 employees and the personal credit of the owner is usually part of the credit review. If the personal credit score of the owner is low, there are some steps that might be taken to minimize the impact.

Short term Solutions:

Research different business loan products  before applying. Try to apply for business loan products that have less scrutiny of the owner’s personal credit.  If possible talk to the lender first.  Find out how much of an impact personal credit has on their business loan product.
If there are multiple owners of a business and one owner has better credit, the owner with the better credit should be the first applicant.   If the owner with the better credit is over 50% owner, the application may be approved without the other owner.   This may prevent a decline for weak credit.

Longer term solutions:

Get a copy of your personal credit report and look for errors.   You can dispute them with the credit bureau and your credit score will go up.  Any derogatory items close to 7 years old may be on the verge of dropping off your report.  If you have limited credit, this may be a time to consider what new accounts you can add to your credit bureau to make it stronger.

2. Derogatory Business Credit

Businesses can have derogatory business credit.   This derogatory business credit may appear on a business credit report.   Examples are State Tax liens, Federal Tax Liens, Suits and Judgements, Past Due Accounts and Collections.

Solutions:

Get a copy of your business credit report through Dun & Bradstreet or Experian Business credit report in advance of applying for a business loan.  If there is incorrect information, the process of correcting it is similar to the process of correcting incorrect credit reported on your personal credit.   Contact the business credit agencies and dispute the incorrect information.   If the business credit agency cannot verify the derogatory credit, it may be removed from your file.

3. Insufficient Cash Flow

The lender believes that the business does not have enough cash flow to handle the new debt.   If the lender is reviewing a P & L, Profit and Loss statement and it is showing a negative net income, that may a decline reason trigger.  Overdrafts and NSF’s happen because of poor or insufficient cash flow.

How to avoid this denial reason:
A.

If your business is declined for this reason, contact the lender to discuss it. There may be alternative solutions.   Your business might be approved for a lower amount.   This can include a starter line that lenders offer just to get the relationship started.   Lenders sometimes do this with borderline decline instances.   They want to take a small risk hoping that the borrower will develop into a good long term customer.

Weak financial statements.

Financial statements are still required for many types of business loans.  If a companies financial statements are weak and show a low net income, decreasing revenues, or other weaknesses, it can easily cause a decline.
How to avoid this decline reason:

4. Collateral

Some loan products are asset based.  In these cases, the collateral must be satisfactory or the business loan will be declined.   Real estate backed loans, accounts receivables financing and equipment loans require acceptable collateral.  Even if the customer has excellent credit and time in business, if the assets do not have enough value or other conditions are not here, they may be declined.

5. Time in Business

The time in business requirement varies from one business loan to another and as much as 2 years or more may be required. Ask the lender if there is a time in business requirement.    If there is, ask if it a hard and fast rule.   For some lenders, if the applicant has other strengths in their profile, it may override the time in business requirement and be approved.

6.Industry.

Some lenders will decline a business just for being in a certain industry.  Often business do now know when applying the lender won’t even loan to their industry.   This is an easy decline to avoid.  Put this in the list of questions to ask a lender before applying.   Do you lend to my type of business?   Sometimes lenders have preferred industries that they lend to.

FAQ Frequently asked Questions on top business loan decline reasons

What are the main reasons businesses get denied for loans?
The top reasons businesses get rejected for loans are: derogatory personal credit, derogatory business credit, insufficient cash flow, lack of collateral, short time in business and industry type.
Why do I keep getting denied for business loans?
Frequent denials for a business loan are in most cases due to bad credit, low sales and profit and not enough collateral. Ask the lender why your business was denied to see if some of the decline reasons are the same. Ask the lender if there is anything you can do to change the decline to an approval.Our business was declined for credit. Is there anything I can do about it?
Ask if it was for personal credit, business credit or both. Try to get any credit bureau and business credit scores the lender will give you information on. Ask if there are minimum credit scores you did not meet and what those score are. Also ask how long you have to wait if you want to re-apply.
Our business was declined for not having enough revenue or cash flow, but we have good sales. What does that decline reason mean?
The lender determined that based on their criteria, your business does not have enough cash flow after expenses to safely pay the new debt. The lender did a cash flow analysis which may have included a debt to income type ratio. If your business is about to payoff any current debt or is increasing revenues significantly, then let the lender know about this. It may be possible to reverse their decision or get an approval on a lower amount.

Some lenders have industries that the do not considered favored industries.   They may consider your industry as challenged or place it in a more difficult to loan to internal category.   Ask the lender: Is my industry a preferred industry you lend to?

How to correct the business loan decline

Not all of these 6 top business loan decline reasons have to be corrected.   Some cannot be corrected.   The steps that should be taken are on a case by case basis. Every company has different hurdles to being approved for a business loan.

Using some of the tips above and your business can overcome many of these top 6 business loan decline reasons and get critical business capital.

Derogatory personal credit
Has your business been declined for a business loan because of derogatory personal credit?
Apply now for fast and easy business loans with bad personal credit.
Derogatory business credit
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Insufficient cash flow
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In summary, the top 6 business loan decline reasons are:

  1. Derogatory personal credit
  2. Derogatory business credit
  3. Insufficient cash flow
  4. Collateral
  5. Time in Business
  6. Industry

There are other excellent resources available to assist small businesses in many different industries prepare for a loan.   The SBA has a 30 minute video session on how to prepare a business loan package.

Should you worry about any more decline reasons?   What are other steps you can take?  There are other considerations besides these top 6 business loan decline reasons.  Others include declines for key financial ratios such as debt to income and declining revenues.

Businesses may get loan terms they don’t want and should consider  Additional action steps in addition to the top 6 business loan decline reasons.

Thank you for visiting this page on overcoming the top 6 business loan decline reasons.