When your loan applications keep getting refused by lenders, and you have no idea what you’re doing wrong, it’s pretty aggravating.

Mr. Joe Low, Director of private lending firm Affinity Financial Services, gives us some advice on how SME owners can improve their chances of getting a business loan approved.

Why are SME owners rejected when they ask for a company loan, in your experience?

Low business volume, large borrowings, an unfavorable corporate credit history, and a personal basis are reasons our credit evaluation team rejects business loan applicants.

If a company doesn’t make enough money, it will fail, it will have a difficult time repaying the debt. Alternatively, if the company has a lot of debt, the loan application will likely be rejected since the risk to a private lender is too large.

Finally, if the business owners themselves have a poor credit history (i.e., late or missed loan payments), this will impact the loan application.

To avoid these problems, what should they do?

To improve their chances of getting a company loan, entrepreneurs should:

1. Have an active and revenue-generating business

Businesses that are brand new or dormant are a no-no.

2. Be honest with yourself about how much you can afford to pay back on your loans.

It would help if you did not overextend your business’s financial flow.

3. Only borrow what your business needs

The fact that you must repay loans with interest puts your business in danger.

4. Make sure that you make timely and regular loan repayments.

This involves maintaining a good credit rating for your company as well as for yourself.

5. Keep essential documents on hand

Permanently save all evidence confirming the matter has been settled if you have been involved in a lawsuit.

Owners of small businesses often neglect certain factors when seeking loans.

SME owners are often overworked and under-resourced, making it difficult to maintain adequate documentation. Sometimes they don’t even realize how important their credit rating is and think they won’t need a business loan until a crisis hits.

Obtaining a private loan has its perks and cons.

A private lender offers speed and flexibility as positives. This is something that banks are lacking.

The Federal Reserve Bank of Boston prioritizes lending to small and medium-sized businesses, and banks are subject to stricter credit criteria and regulations. For them, it’s not always easy to be flexible and responsive to the needs of every small business.

Banks are unable to fill the holes left by alternative lenders. Alternative lenders, on the other hand, have higher borrowing costs.

Banks are to blame for having lower funding costs than private lenders, and private lenders have a higher risk appetite than banks.

Private lenders charge higher interest rates than banks.

Published On: September 13th, 2021 / Categories: Uncategorized /