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.
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.