Why Was My Loan Application Denied?
Most People Fail at Trying to Get Money to Grow Their Business
Unaware of other solutions, many people go straight to the bank when they need money to expand their company. They are unaware that their company credentials, not their personal credit, will be used to obtain financing. They are still unaware that there are opportunities to improve their odds of obtaining a business loan.
The Chances of Getting a Bank Loan are Not Great
According to a recent NAV survey, 45% of small business owners who are refused loans are turned down several times. According to a 2017 Federal reverse bank survey, 65% of all applicants to major banks with medium to high credit risk were rejected, and these denials are on the rise. In November 2018, over 7% of all small business loan applications to major banks were rejected. Consequently, these statistics were even worse during the COVID-19 Pandemic.
There Are All Sorts of Reasons for a Business Loan Denial
In 2016, New York Fed reported on a survey of over 10,000 small business owners. The reasons for denials included the collateral was not enough to justify the full loan amount being requested, weak business performance, low credit score, insufficient credit history, too much debt.
How Did Small Businesses Make Up Their Funding Shortfalls
76 % of businesses with financial difficulties used personal funds to bridge the void. To close the void, almost half of small companies took on more loans, made late payments, and downsized activities. None of these options are long-term viable.
Not getting Funding Can Mean a Business Will Fail
Cash management problems account for more than four out of every five small business failures. About half of all businesses collapse when there is no need for their products or services. More than a fifth of small companies collapse due to a lack of funds. The majority of companies collapse within the first ten years of operation, but yours does not have to be one of them.
Lenders Use Data to Decide on your Application
Lenders gather data from a wide range of sites and don’t warn business owners about any of them. Knowing what these hidden sources are measuring would only benefit you. Knowing what matters most makes securing a loan a lot smoother so you’ll know where to focus your efforts first. This detail may mean the difference between approval and rejection.
Information Lenders Use: LexisNexis
Many of the lenders who refuse loan applications get their information from LexisNexis. They have details about the chances of paying or not paying. LexisNexis details are compared to what you put on your loan application by lenders. The loan providers can refuse you a loan if the application and LexisNexis do not fit. LexisNexis employs a patented connecting system that links all of your personal records, both positive and negative. They have access to your arrest history, documents on any address you’ve ever lived, speeding tickets, and every mortgage you’ve ever had.
Information Lenders Use: Small Business Financial Exchange
The SBFE is a non-profit organization that collects information about small businesses from its members. The members are the owners and lenders of the company. The details are then used to create a detailed credit report. This knowledge is used by lenders to make credit assessments. It’s a massive, top-secret data warehouse that operates on a “give-to-get” basis. Members have information on their creditors, such as payment history. In addition, they would be able to obtain information from the exchange. It is in a lender’s best interest to obtain complete data for you and your small company if you have complete data. The SBFE’s lenders are meticulous. The SBFE gives you a lot more information than just your payment background. Credit monitoring and LexisNexis get their data from the SBFE. Any piece of information you’ve ever sent in a business application is terem, and if there are any inconsistencies, your loan application will be rejected. Credit monitoring companies that have partnered with the SBFE are known as Accredited Vendors. Equifax, Experian, Dun and Bradstreet, and LexisNexis Risk Solutions are the SBFE’s only Certified Vendors so far. Lenders may use other credit providers, but when they join the SBFE and use a Certified Vendor, they get the advantage of both the vendor’s and the SBFE’s records.
Why Does the Information from the SBFE and LexisNexis Matter to Lenders?
This information is used by lenders to double-check loan applications. They are checking to see if their loan requirements are being met. They want to determine if what you claim on your application matches with the records. Credit issuers want to know what the chances are that the company will collapse.
Want to Avoid Denials? Then Job One is Records Congruency
Maintain consistency with the records. LexisNexis and the SBFE are scrutinizing everything, so be sure the documents fit otherwise you’ll be denied due to theft, this is how lenders view discrepancies. This is a source of denials that lies in the hands of the company owner. You have the power to alter and amend this situation.
Records Congruency
Your corporate name, address, and phone number must be consistent with your IRS reports, as well as your business’s history with Dun & Bradstreet, Experian, and Equifax, as well as all permits and incorporation papers. To ensure sure that the information is right, copy and paste it.
Want to Avoid Denials? Then Build Fundability
Maintain a respectable image for your company by using a reputable website and email address, a toll-free number, a 411 phone number listing, a business address that is not a PO or UPS box, and obtaining the required licenses.
Want to Avoid Denials? Then Get Your EIN and More
To get a free EIN number, go to the IRS website. Select your corporate entity at the same time. You choose to become a corporation or a limited liability company (LLC). The only way to fully distinguish a company from its owner is to do so. You may also choose SIC and NAICS codes on the IRS website. If you’re in a high-risk or regulated sector, these codes will tell you. If more than one code exists, choose the one that isn’t high-risk or prohibited. This is also where you list your company name, so avoid naming your company after a high-risk or limited market. Chico’s Bail Bonds, for example, may be called Chico’s without losing its credibility or clarification. High-risk and restricted industries include not just industries like bail bonds, they include industries which generally have a lot of cash transactions or the potential for injury to workers is high.
Want to Avoid Denials? Then Get Your Business Identification Numbers
The DUNS number is the most well-known identification number. A DUNS number is used to enter the company into D&B’s database. This is an essential move that can not be skipped. Apply on the D&B website, and within a few weeks, you will receive a number. A PAYDEX score is calculated using your DUNS number and three purchase impressions. Experian’s BIN number is another industry identification number. BIN stands for Business Identification Number, and Experian’s BizSource assigns a BIN. Find your company’s BIN at: sbcr.experian.com/main.aspx
Want to Avoid Denials? Then Build Business Credit
Business credit is under a company’s name, not the owner’s. It demonstrates a company’s ability to repay loans. A low or non-existent business credit score would not reassure lenders that the company will be able to repay them. You don’t get company credit if you don’t work hard for it; it doesn’t happen by accident. You can get loan approvals without a personal guarantee even though you have poor credit. As a result, business owners are not individually responsible for the obligations of their company. Building business credit is fast, and our process takes about four to six months to complete. Prospects, rivals, others wanting to buy your company, customers, and others will all see your business credit reports, so it’s critical to establish good credit. Credit with the company is a valuable resource. Once you have both consumer and commercial credit, you might be able to borrow more money. Consumer loan limits are 10-100 times higher (per SBA). As a startup company, you can get eligible for business loans long before you can get a bank loan or alternative funding. You will use your own profits to fuel your business growth if you have access to loans and credit lines. You have a comparative edge if you have business credit. As long as you have a company in the United States, you can get business credit. And if you own a non-profit business, you can still get business credit. The creditworthiness of a company decides whether or not it would be eligible for a business loan, as well as the amount and terms of the loan. And if you have no business credit, you will be refused loans depending on the nature of your business credit. You become more fundable by using confirmed payment impressions. You will begin to apply for higher approvals on business credit cards, bonds, and credit lines as your business credit grows and your business credit scores rise.
Why is Business Credit Needed for Business Loans and Credit Lines?
You would not be able to obtain bank loans or credit lines if you do not have existing business credit. Without business financing, an investor has no way of knowing how the company will pay its bills. A credit lender would, understandably, be wary of the application and will reject it. It would be a personal loan if you get a loan at allAs a result, your personal credit will be checked, and your personal belongings, such as your house, will be at risk. For business credit, this is not the case.
Build Business Credit
Begin by establishing vendor credit for your company. They’re newcomers who can lend credit where others won’t. They frequently have Net 30 terms. Use the account with them to make timely payments. You can apply for retail credit if you have at least three vendor accounts. When you’ve finished with retail accounts filing, you should move on to fleet credit. Fuel, as well as equipment maintenance and repair, are paid for with fleet credit. The next stop in more universal cash credit is with at least 14 tradelines publishing. This applies to Visa and MasterCard credit cards.
Want to Avoid Denials? Then Monitor Your Business Credit
If you check your company credit, you’ll never know what’s going on. Small problems with your company credit will quickly escalate into major issues if you don’t keep track of them. Keep an eye on the company’s credit at Dun & Bradstreet, Experian, and Equifax. You will keep track of the three for 90% less than you can pay at a corporate CRA.Visit: creditsuite.com/monitoring
Want to Avoid Denials? Then Get Approved with Fundability
Collateral, personal credit, and cash flow are the three C’s that lenders check for. In the very least, having one of these will help you get a business loan. Revenue loans from sites like Square and Paypal can be obtained simply by having strong cash flow. If you have a FICO score of 680 or higher, you can only get credit lines if you have decent personal credit. If you don’t, then you can work with a guarantor who does.
Want to Avoid Denials? Then Look at Getting Approved with Collateral
Accounts receivable funding, buy order financing, machinery financing, and industrial real estate financing can all be obtained simply by providing strong collateral. Collateral comes in multiple variations, including 401(k) plans, securities, shares, vehicles, account receivables, property, properties, and more.
Want to Avoid Denials? Then Consider Getting Approved with Good Personal Credit
Credit Line Hybrid is available to those with good personal credit. You will receive up to $150,000 in credit line approvals for Credit Line Hybrid, with no customer reporting and some industry reporting. The number of approval is equal to the existing limits. You must have less than five requests on your credit report in the last six months to apply. You should have created credit, with open revolving accounts that are now listed on your credit report and balances that are less than 40% of your credit limits. Personal credit scores of at least 680 are usually needed by lenders. For the first 6-18 months, much of our proprietary unsecured lending provides extremely competitive introductory interest rates, as low as 0%. Rates typically range from 5% or more after the introductory period; the actual rate will depend on risk.
Want to Avoid Denials? Then Check Out Getting Approved with Collateral and Cash Flow
If you have access to both credit and cash, you will be eligible for term loans and lines of credit, as well as SBA loans.
Recap
Business loans will not have credit until they believe you will be able to repay the loan. This ensures you must show your ability to do so. Lenders are assured by consistent documents, adequate licenses, an EIN number, decent business credit, collateral, personal credit, and cash flow.
