Customers have several common complaints about Business Loans. We will take a look at the Top 12 customer complaints with business loans. Customers often do not close an approved business loan because of one or more of these reasons.
The rates and cost is too high. They want a better rate and terms.
Customers often want and need a business loan with a lower rate and better terms.
Another requirement is they need a business loan with lower total repayment and lower cost overall.
The approval amount is not enough
Customers often call in and say they need a higher approval amount and more money
for my business loan. They will go for a different loan if they cannot get what they want, or also get a second loan.
The term of the loan is not good.
Customers also say the term is too short and needs to be longer. Another requirement is a business loan longer than 24 months.
It is not a Monthly Payment.
A very frequent request is to get a business loan with a Monthly payment. Customers really want a Monthly payment if they can get it.
It is a daily payment.
Applicants will say right away if they do not want a business loan with a daily payment. They have had this type of business loan in the past and they will not close business loans that have a daily payment.
It is a Merchant Cash Advance.
Customers oftentimes do not want a Merchant Cash Advance. They will say they need a business loan that is not a Merchant Cash Advance. When this is the case, the customer will look for alternatives to a Merchant Cash Advance.
The Prepayment option is not good.
Another complaint is they want a business loan with no prepayment penalty. They want to be sure they will get a good discount if they pay off early.
The type of loan is not what they wanted
Sometimes customers will tell you they don’t want the type of loan they have been approved for. They do not want an expensive business loan or want a different type of business loan. They are not sure what type they want, but they have decided they don’t want the one being offered. Have a conversation about other business loan types so Customers will get the loan that works for them.
They don’t want to put up Collateral
Many do not need or want a business loan with Collateral. They do not want to put up Collateral, or they do not have Collateral.
Do not want to give a Personal Guarantee.
Customers may not want to close a business loan with a Personal Guarantee. They believe they can get a business loan with no Personal Guarantee. There are very few business loans that do not require one.
The loan will, or will not be reported on Personal Credit
A business loan that reports on Personal Credit is sometimes requested. Applicants insist on a business loan that reports on their personal credit.In other cases, customers want the opposite. They want a business loan that does not report on Personal Credit and want to make absolutely sure there will be no reporting on their Credit Bureau.
The request took too long.
Some business loans that are eventually approved do not close because the processing time was too long. Customers will tell us they need a Fast business loan that does not take long to get.These are the Top 12 Customer complaints with business loans.Contact us for programs to avoid these common business loan problems.
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.
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.
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.
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:
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:
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.
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.
In summary, the top 6 business loan decline reasons are:
Derogatory personal credit
Derogatory business credit
Insufficient cash flow
Time in Business
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.