Common Reasons for Business Loan Denials and How to Address Them

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Importance: Having a professional and documented business structure heavily impacts business loan approval.

How to set up a professional business structure on paper:
  • Establish a unique business address (not a home address)
  • Establish a business phone number
  • Create a professional business website with a URL
  • Set up an LLC or appropriate legal structure.
  • Reasons for denial: Lack of professionalized appearance business structure on paper is grounds for denying a business loan, even if the business is highly profitable.
  • Not setting up the proper legal structures or business credibility will guarantee that you will not be granted a business loan.

Significance: Having an established and strong business credit will significantly improve your chances of getting a business loan approved.

How to avoid business credit issues:
  • Have an organized and comprehensive report of your business credits.

  • Ensure that all business loans, credit accounts, and payments are paid off in a timely manner.

  • Reasons for denial: Not having any established business credit history, having poor established business credit history, missing payments, high credit utilization.

Demonstrating prolonged financial stability and profitability is essential in obtaining a business loan.

  • Provide a detailed, organized, accurate, and comprehensive account of all business-related finical statements.

  • Ensure that your business has a positive cash flow and is making a profit.

  • Maintain accurate and complete taxation documentation.

  • Reasons for denial: Lack of cash flow, financial losses, incomplete financial records, low bank balances.

Having complete and accurate documentation is crucial for loan applications.

  • Fill out all required bank loan documentation accurately, do not leave anything unanswered or unaccounted for.

  • Provide a valid business email.

  • Set up an LLC.

  • Ensure that all bank statements are complete, accurate, and up to date.

  • Main reason for business loan denials: Incomplete or bad documentation. Even if all the correct documentation is complete, having a negative cash flow or negative tax return on bank loan applications will get you denied.

Importance: Managing business debt relative to revenue is critical for obtaining bank loans.

  • Keep business debt at manageable levels, do not accumulate very high amount of debt.

  • Avoid excessive borrowing to business income.

  • Reasons for denial: High levels of business debt compared to revenue.

Importance: Understanding the specific reasons why your business loan was denied can help pinpoint areas of concern and can help with future business loan applications.

  • Speak directly with the underwriter of the bank where you applied for the business loan.

  • Ask very detailed questions to the underwriter and ask for descriptive feedback on the reasons for business loan denial.

  • Use the feedback to correct the business loan issues.