Getting your small business loan request denied is much easier than getting it approved, especially if you are not prepared. It’s a proven fact that banks are denying 90% of the applications they get therefore preparing yourself to get approved gives you a better chance of being in the 10% approval pile. The best way to prepare yourself to get approved for a small business loan is to know what lenders want and what they don’t want. Here I will discuss what they don’t want by outlining the quickest ways to get your small business loan request denied and what to do to get your small business loan approved the first time you apply.
- Lack of Creditability – Having a less than perfect credit history (or no credit history at all) is one of the top reasons why small business owners get their loan request denied, especially if the business is a start up. Banks and lenders only want to lend to small business owners that have a history of properly managing their debts and paying them back on time. Therefore if you don’t have the best credit history, you may want to focus on repairing and rebuilding your creditability before you apply for a small business loan. The best way to repair and rebuild your personal credit history is to pay off your creditors and ask them to stop reporting all derogatory and delinquent accounts to the 3 credit bureaus (Experian, Equifax, and Transunion) if you pay what you owe
- If they agree to stop reporting all derogatory and delinquent accounts if you pay what you owe, ask them to put it in writing (have it signed by a notary) and send it to you certified mail before you pay. Have a lawyer review the certified letter and if all looks good, go ahead and pay off the derogatory or delinquent account. Once you have done that with all of your derogatory and delinquent accounts (and they have stopped reporting to the 3 credit bureaus), try applying for a secured credit card with a small limit ($500 or less). Use it for purchases that you know you’ll have the money to pay back and do this for about 6 months. You should see your credit history improving and credit score increasing which will put you in a better position to qualify and apply for a small business loan.
- Inability to Service Debt – If you can’t prove to a lender that you earn enough income to pay back the small business loan you are requesting, you’re request will be denied. Lenders need to see proof that you have the ability to service the debt. Therefore I suggest maintaining long term employment and/or starting your business to generate revenue before you request a small business loan. Applying for a small business loan when you are unemployed and/or have no personal or business income is small business loan application suicide. As a rule of thumb, you should be employed for at least 6 months (or operating your business for at least 6 months – with 6 months of revenue) before you attempt to apply for a small business loan.
- No Investment of Your Own – Why would a lender approve you for a small business loan when you haven’t invested in yourself? Many lenders will want to see that you have taken the time and your own money to invest in your business. If you truly believe your business will be successful, why not invest some of your own personal savings to get it going? If you can show a lender that you have your own funds you can bring to the table, they just might be more inclined to approve your loan request. If you don’t believe in you, why should anyone else? Prove that you believe in yourself, by investing in yourself.
Brittni Abiolu is the Owner & Publisher of www.CapitaLinker.com. Through her website, she serves to educate entrepreneurs and small business owners on how to increase their chances of obtaining capital in the simplest way possible and how to find and connect with the most appropriate funding sources. You can connect with Brittni on Linkedin, Google+, Twitter, Facebook, and Pintrest.
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