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5 Ways to Get Turned Down for a Small Business Loan

When you’re prepping for a job interview, you want to polish your resume, select an appropriate outfit, and practice speaking clearly. If you don’t come into the process prepared, there’s little chance you’ll get hired.

Successfully applying for a small business loan isn’t too different from applying for a job. While sites like Fundera make it simpler to apply for a loan, you’re still going to need to put a little work into your application.

Luckily, there are a few common and easily-corrected mistakes that small business owners make when applying for a loan. To help you avoid these pitfalls, we’ve put together a list of five things to watch out for in your own application:

1. You’ve got bad credit (and are unrealistic about it)

Just because you have a functioning, profitable small business doesn’t guarantee that your credit score is sterling. Missteps in the past could still be damaging. Check your personal and business credit scores from services like Experian or Equifax before applying for a loan. While borrowers with poor credit can have difficulty securing traditional financing, alternative lenders in Fundera’s network can often make offers to those same small business owners.

2. You let your books become sloppy

Going into a meeting with shoddy records and business documentation is a surefire way to get turned down for a loan. Make sure that your books clean, organized,  easy to understand, and otherwise in order. If possible, have an outside financial adviser or accountant review your documents to make sure they are presentable.

3. You have ongoing credit payments, and not enough income to support more

If your business has credit card or other debt, you must have reasonable income coming in to support those debts as well as any new loan payment. Your income, minus ongoing credit repayments, is typically calculated in order to determine your real income, just to make sure that a new small business loan doesn’t completely empty your wallet. If it looks like you might have trouble keeping enough cash around to pay off the loan, most banks will almost certainly end up rejecting your application.

4. Your business plan is problematic (or non-existent)

In order to take you seriously, a lender needs to see a high-quality business plan that shows significant preparation and a sense of where your business is headed. If you don’t have a fully fleshed-out plan, work with a financial adviser to polish your strategy and financial projections. Lenders need to know that the company is in the hands of a capable manager.

5. You apply to a lender that has rejected you before

If a lender has turned you down before, there’s a good chance they’ll do it again. It’s generally smart to not re-apply to the same bank or alternative lender, unless at least a year has passed and your financial situation has significantly changed. Luckily, there are many lenders out there, and if you get rejected from one, another one might very well jump in to take on and support your business.

Meredith Wood

Meredith Wood

Editor-in-Chief at Fundera
Meredith is Editor-in-Chief at Fundera. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.
Meredith Wood