Common 5 Reasons Why Banks Won’t Loan You Money For Business
It’s not feasible and practically impossible to scale a business just by drawing money from your own pocket. You may beWhether you are looking to hire new emplo
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It’s not feasible and practically impossible to scale a business just by drawing money from your own pocket. You may beWhether you are looking to hire new employees, buy inventory, or expand, one thing is for certain, you will need additional capital to keep the wheels running.turning.
Unfortunately, the biggestbig banks in the game are typically not investor friendly lenders for many reasons. Perhaps they are just under a bigger microscope than their smaller counterparts. Whatever the case, securing a small business loan in through a banks has become increasingly become challenging.
Read to find outBelow are the most common reasons why banks decline 80% of business loan applications:
1.) Poor Credit Scores
All lenders, whether they’re in business or commercial real estate lending, scrutinizes credit scores. The big banks, however, do it more closely, and by closely, that means they are going to digging up even your earliest credit records.
Any way you look at it, it spells doom for sSmall business owners . They often use their personal credit cards when starting, and it could have been a while before they paid everything back. In any case, banks look for at such records and may hold them against you. If your credit score goes below 650, chances are, they’ll show you your way out.Keeping your credit score above 650 is the best way to ensure loan approval.
2.) Lack of Customer Diversity
Banks are wary of businesses that report depend on a few customers for a significant chunk of their sales on few customers. Small businesses that often rely on “regulars” are more likely to notless likely to have a fallback in case something drastic happens. That’s why if your business is like that, you almost have no chance of getting approved.Diversifying your client pool is a good way to show that you have a dependable source of income.
3.) Not Eenough Ccollateral
Again, one of theAnother things that can hold small business owners find themselves running through a financial wallback is a lack of collateral. This is perhapsCollateral is the best way banks can make sure they can’ll get their money back in any case. If you don’t have enough equipment, property, and other big assets, they will show you the dooryou’re unlikely to get approved.
One way to get around this is to work with a co-signer who has sufficient collateral for a bank loan. Another way Is there any way to go around this hurdle? There might be, if you’re willing to go all in. For instance, if you’re looking for a real estate loan, then you may have to risk every bit of your business assets or your personal property. For many, that’s too much that’s why theyis to turn to more investor friendly lenders who understand commercial real estate lending and are willing to work with you.
4.) Inadequate Debt-to-Income Ratio
The debt-to-income ratio simply means how your net income holds up against your debt. This is a great measure for banks and other lenders to know if you have enough cash flow to pay off your debts. Insufficient debt-to-income ratio is also the reason why banks will almost automatically deny any business loans when if the company already has other commitments to other lenders. There’s just not enough to go around.
What is a good debt-to-income ratio, then? Consider this: Say your Net Operating Income is $200,000 and your debt is $120,000. That means you have a ratio of 1.67, which is good enough for most banks. Many consider a ratio of 1.5 to be already high, but these people are fickle so you may never just know, especially if it’s a time of recession.
5.) Economic Apprehension
Sometimes, it doesn’t need rocket science why banks deny business loans. If they look at the economic weather and saw black clouds, they are more than willing to spurn you. This is, of course, totally unfair, but in this business, you have to look out for your own, even if it meant not helping anyone else.
Banks are great at what they do, and what they do best is protect their own interests, no pun intended. For normal purposes, banks are giants that you can lean on, but when applying for business loans or even commercial real estate lendingloans, they may not be the best ally for yousource of capital for you. At the slightest hint of doubt or economicIf they have any concerns about your income or ability to pay back a loan, they won’t hesitate to deny business loansyour application. With that being saidHowever, there there may beare other options out there that you should explore if you’re trying to scale your small business. It’s just that, more often than not, banks are not your finest option here.While it’s fine to consider bank loans, look into other investor friendly lenders, too.
Source: short term hard money loan