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Being denied a working capital loan can be a frustrating experience, especially if your business is in dire need of financial assistance. There are a number of reasons why your loan application may have been rejected, and taking the time to understand those reasons can help you improve your chances of being approved for funding in the future.
Being denied a working capital loan can be a frustrating experience, especially if your business is in dire need of financial assistance. However, it's important to remember that being denied doesn't mean that you'll never be approved for financing. There are a number of reasons why your loan application may have been rejected, and taking the time to understand those reasons can help you improve your chances of being approved for funding in the future.
Your Personal Credit Score Is Too Low
One of the most common reasons small business owners are denied working capital loans is because their personal credit score is too low. Lenders typically consider both your personal and business credit scores when evaluating loan applications, and if your score is below 600, you may have difficulty securing financing.
If your personal credit score is the reason you were denied a loan, there are a few steps you can take to improve your chances of being approved in the future. First, order a copy of your credit report from all three major credit bureaus and look for any errors or inaccuracies that may be dragging down your score. Secondly, make sure you pay all of your bills on time and reduce your overall debt load as much as possible. Over time, these steps should help to improve your credit score and make you a more attractive borrower in the eyes of lenders.
Your Business Is Too Young
Another common reason small businesses are denied working capital loans is because they haven't been in operation for long enough. Lenders typically want to see at least two years' worth of financial statements before they'll approve a loan, so if your business is less than two years old, you may have difficulty securing traditional financing.
Fortunately, there are a number of alternative financing options available for young businesses. Some lenders specialize in providing loans to startup businesses, so it's worth doing some research to see if there are any lenders who may be willing to work with you. Additionally, government-backed Small Business Administration (SBA) loans may also be an option if your business meets the eligibility requirements.
Your Revenue Is Too Low
Another common reason small businesses are denied working capital loans is because their revenue is too low. Lenders typically want to see evidence that your business is generating enough revenue to repay the loan, so if your revenue is below $50,000 per year, you may have difficulty securing traditional financing. Fortunately, there are a number of alternative financing options available for businesses with low revenue levels. For example, some lenders specialize in providing loans to businesses with high growth potential, so it's worth doing some research to see if there are any lenders who may be willing to work with you. Additionally, SBA-backed loans may also be an option if your business meets the eligibility requirements.
You Have Too Much Debt
Finally, another common reason small businesses are denied working capital loans is because they have too much debt relative to their income levels. This ratio—known as the debt-to-income ratio—is one factor that lenders use when evaluating loan applications, and if it's too high, you may have difficulty securing financing. If this is the reason you were denied a loan, focus on reducing your overall debt load as much as possible before applying for new financing. By taking this step, you'll improve your chances of being approved for funding in the future .
The Industry You're In Is High Risk
Some industries are considered higher risk than others from a lending perspective , which can make it more difficult to secure financing . If you were denied a working capital loan because of the industry you're in , sit down with your lender and try to understand what specific risks they're concerned about . Once you have this information , you can take steps to mitigate those risks and improve your chances of being approved for funding in the future.
The Timing Wasn't Right
Last but not least , it's important to keep in mind that timing can also play a role in whether or not you're approved for a working capital loan . If there's been any changes in the economy or interest rates have gone up since you applied , this could explain why your application was denied . In these cases , it may simply be a matter of waiting for market conditions to improve before reapplying for financing .
If You're Denied A Working Capital Loan, Don't Give Up!
Being denied a working capital loan can be discouraging , but it doesn't mean that getting funding is impossible. There are many factors that go into whether or not a lender approves an application, and by understanding these factors, you can improve your chances of being approved for financing in the future. In some cases, such as when market conditions aren't ideal or you're in a high - risk industry, it may simply be a matter of waiting until conditions improve before reapplying for financing.
If you've been denied a working capital loan, don't give up! National Legacy Capital Group specializes in working capital loans, business lines of credit and equipment finance for small businesses. We understand that getting funded can be difficult, but we're here to help. Contact us today to learn more about our financing options and see if we can help your business grow.
