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Why Your Small Business Doesn’t Qualify for a Loan (And What You Can Do About It)

If you’re attempting to get your small business off the ground and failing to secure loans from the bank, don’t give up. There are several other avenues to pursue, and while many come with added risks, the rewards can be just as great. From private lenders to hard money loans, peer sponsorship programs to community banking connections, read on to find a bevy of loan options that can make your small business dreams a reality.

Startup Status

If your small business is a startup, you may be finding it impossible to find a bank willing to work with you. Financial institutions tend to avoid lending to startups until you have at least a few years of successful business under your belt, and they’ll want proof that you have demonstrated some sort of ability to pay back previous loans.

What You Can Do:

According to the Wall Street Journal, banks have cut back immensely on the number of small business loans approved each year, so you’re not alone. The proof is in the pudding: In 2006, the top 10 banks lent $72.5 billion dollars, and by 2014, that number had dropped 38 percent to $44.7 billion. This cutback in bank loans resulted in a new cache of lenders for startups to choose from. While nonbank lenders do charge much higher interest rates, they are a great solution for those who simply can’t secure a loan from a bank. Check out P2P, a peer lending program that could see you gaining a loan of up to $35,000 from a stranger. You’ll need great credit and will be paying a steep interest rate, but it can be great for those startups that just need the capital to get running.

Bad Credit

If you have bad credit (or no credit) banks are probably not going to be willing to lend you money. Banks will look at your personal and business credit scores, and this can affect your interest rates and your ability to qualify for the loan. A lack of credit is similarly as impossible to work around with banks, as no financial track record usually means no loan.

What You Can Do:

If you have a valuable property and want to avoid foreclosure on your business before it hits the ground, consider getting a hard money loan. This short-term financing option is a great one if you’re in a pickle and your credit is preventing you from receiving a bank loan. This can be a great way to gain necessary capital as long as you’re willing and able to pay it back quickly.

Big Banking Standards

The financial crisis of 2008 is still felt, as you’ve no doubt experienced in your struggles to find a willing lender for your small business, especially if you’re going through a larger, national bank. Banks have raised their standards to avoid the risk of lending to companies that won’t give them a return.

What You Can Do:

Instead of failing to meet big bank standards, consider applying for a loan through a community bank, preferably one where you have good standing and solid connections.

No Collateral

If you have no collateral to speak of— this means valuable property that will cover the cost of the loan should you fail to pay it back—you can almost guarantee that banks are going to shirk your request. Without valuable property or expensive equipment (or a willingness to put personal collateral on the line) you likely don’t have any way to collateralize your loan. If you don’t have anything the bank deems as valuable, you can pretty much kiss your loan goodbye.

What You Can Do:

Some lenders don’t require that you have collateral, but this route isn’t without its provisions. Try an online lender like Bizfi, which will give you a bevy of small business financing options. This company will match your small business with the right lenders and get you the cash you need to start making progress on your business aims.

No Business Savvy

Don’t expect that a simple loan application will have the bank forking over the money you need. Banks expect presentation and business savvy, including a well-thought out business plan, projected earnings, credit reports, and any other pertinent information related to your financial acumen and prior business experience. Banks want to know that you are a safe bet, and a simple application won’t cut it.

What You Can Do:

The simple answer: come prepared. Do your homework, speak with financial advisors beforehand, and make sure all your “T’s are crossed and “I”s are dotted before submitting your request.



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