Approvals for business loans from traditional lending channels hovered around 50% at the end of 2019. Approvals for similar loans from the major banks and credit unions were even lower. Loan turndowns are on the rise, but there are a few things business owners can do to increase their chances of approval, as well as financing options when turndowns occur.
Factors that Influence Loan Turndowns
There are many reasons why banks and other traditional lenders reject business loan applications. New and small businesses, as well as commercial property investors pose increased risk to lenders, as opposed to larger, well-established companies. Lenders are hesitant to provide financing to entrepreneurs because of the high rate of failure among small business owners. However, the increased rate of failure is due to not being able to secure adequate financing. It’s a Catch-22. Additionally, traditional lending channels have been raising their requirements for business loans to mitigate risk from applicants, which prevents new and small businesses from thriving and growing in that crucial period following launch.
New and small business owners need to understand what lenders want to see in order to secure financing. The first place to start is with a business plan. Lenders want to see a detailed business plan with costs, projections, risks, contingencies, competition analysis, and more to demonstrate that all factors have been taken into account. Most importantly, lenders want to see how long it will take for the business to become profitable, which is a big factor in the approval process. Business owners should also take care to clean up their personal and business credit reports. Lenders have been tightening credit requirements on business loans. For new businesses, banks will often look at the owner’s credit report because the business itself may not have the history or ratings to qualify for a loan.
Alternatives to Traditional Loans
If a business experiences a loan turndown, or if they want to avoid the process completely, there are a number of financing alternatives available. New and small business owners can access unsecured lines of credit without needing to put collateral on the line. Merchant cash advances are structured around sales history instead of credit ratings and have more flexible repayment terms than traditional loans. Equipment leasing packages offer business owners the machinery, tools, vehicles, software, and other items needed to fill client orders without a large upfront cost. There are even alternative lenders that provide SBA loans with faster approval and processing times than traditional lending channels. There are many financing options open to new and small business owners who have been turned down for traditional loans.
Get the Right Financing for Your Business
Web Finance Direct offers a wide range of financing options for new and small business owners. Our team will work with you to get your business the capital, equipment, and property it needs to ensure long-term success. If you want to avoid loan turndowns, or if you are looking for alternatives to traditional lending channels, contact Web Finance Direct today.