Whenever applying for a business loan, we should always keep in mind that banks are also businesses that exist to make money. They’re not exactly lending money out of the goodness of their hearts. So they don’t just approve loans for anyone who applies for it. To ensure that you’re ready, check out the hurdles that you could face when you apply for a small business loan.
Apply for small business loan with insufficient or poor credit history
Lenders will always investigate either a borrower’s business or personal credit history. If you just opened your business and have an insufficient business credit history, the lenders will turn to your personal credit report. Try to sort out any credit report errors or improve your credit score to have a fair chance of approval.
Having a good credit report doesn’t get you the green light for a business loan. You also need to prove to your loan officer that your business is generating enough income to be able to repay the debt. If they find out that you do not have a stable income or perhaps your business is still in debt with other entities, you can expect your application to be rejected.
Apply for a business loan with no collateral
Business owners use infrastructure, inventory, accounts payable, or equipment as their collateral. However, if your company is pretty new, you may not have any of these to help your loan application. If so, then you may be asked to use your house or your car as collateral for the business loan, but this is pretty risky. See to it that you will be able to manage to repay the loan and the interest.
Low or zero capital investment
Lenders usually favor business loan applicants who have sufficient capital investment in their business venture. A small business that relies heavily on outside funding and with little to no capital investment from the owners isn’t exactly the type of business that lenders can trust.