3 Common Reasons Banks Deny
Small Business Loans
11/10/2020
ANDRES FERNANDEZ
5 MIN READ
Table of Contents
Rejection is Tough
The first thing you must know is how common it is for small-business owners to get denied on for a loan. You are not alone, many business owners face these challenges all over the nation. Take into consideration the statistic of how often small business owners get denied:
“Only about 37% of small businesses apply for financing, and of those who do apply, banks reject around 80%”
Small businesses have become known as risky, ever since the 2008 crisis. The state of small business economy had 40% of loss jobs, yet small firms have created 2 out of 3 new jobs in America at a relatively slower pace. Rejection has been in place of small business loans ever since. I mean, entrepreneurs are used to rejection but when it comes to funding your business and being denied, that stings for a while.
Cutting Right To The Chase
There are a few key arguments to why small businesses tend to get rejected most often than not mostly in 2020. Lets start with the first common point:
THE PANDEMIC SALES
Small businesses were battered by COVID-19, reporting weak sales and income receipts. They were on survival mode. Small businesses had to shut-down, because customers weren’t going to stores anymore. Many businesses had to shuffle their way to partner with delivery services, but some businesses have question the costs. Having to outsource delivery staff or asking customers to call directly for an order. This hurt the revenue of most businesses due to outsourcing or partnering with delivery services.
Now, I may add some businesses thrived during the pandemic due to these delivery services. Many also maintained to keep afloat and this where small business loans come in. These business were able to get from SBA to receive the disaster relief but business felt it wasn’t enough, so they went to banks directly. Banks started to see their sales, and bank statements and felt it was to risky to give a loan to small business that might go under soon. Businesses were thirsty for lines of credit or term loans and banks had a gallon of water all to themselves.
SHORT RECORD OF PERFORMANCE
Being a young startup on the block can be very exciting and it is, but you can’t really blame the lenders for being a bit dubious. Lenders look at the business cash flow and bank statements, typically 6-12 months prior. They want to see history of success, and usually small business startups don’t see that for a while. In a sense, if you lack the experience and years in business, lenders will lack the confidence to lend you capital.
Don’t take this as an insult — lenders typically have guidelines in place for risk purposes. Fortunately, there are lenders out there that have a different set of guideline structures. For example, we at Capitalize Loans are one of those lenders that don’t ask for much. We only ask for the last three month bank statements and a pre-qualification application. We don’t ask for credit minimum, collateral, nor upfront costs, because we stand with you and understand the importance of capital for small businesses.
CREDIT SCORE
Your credit score is used to dictate a consumer’s creditworthiness. In that case, the higher it is the better and lower it is, well you get the gist of it. Many lenders are requiring minimum credit scores because they are scared! They don’t trust future promises, they rely on past delivery. Keep in mind, a few lenders tend to look at your business and personal credit — both scores will give them a story when looking at your loan application.
Lucky for you, we have reached a new era of business lending.
The New Era of Business Lending
Banks continue to raise capital levels to meet new regulatory standards, potentially hurting the ability for small business owners to obtain a loan. Take a look at the chart below on how technology can and has changed the game, from Harvard Business School on the State of Small Business Lending.
Small businesses clearly want online loan options. The keyword, “term loan” on Google has increased about 45% since 2006 and every year it continues to grow.
5 Great Benefits of Online Business Loans
- Easy to Apply - Capitalize Loans' application takes 10 minutes
- Accessibility
- Lower Interest Rates
- Your Own Personalized Repayment Schedule
- Great Incase of an Emergency
The Solution
Capitalize has been aware of the downfall for many struggling businesses. That is why we strive to help owners receive working capital, because small business take up a huge scale in the United States. According to fundera, approximately 30.2 million small businesses are in the states with a whopping 99.9% of all U.S businesses.
Finally, the first step to getting approved with us are three simple steps. First, fill out the no commitment application at the top right of your screen. We ask for basic and business information so we can learn a little about you and the company. We will ask for the last 3 bank statements to determine whether your business can financially support a new loan. Second, Capitalize will then receive the information in an instant and will look over all information that was submitted.
We will contact you within 24 hours, because that is our rule, we do not want anyone waiting and biting their nails for too long. And lastly, Capitalize will then get in touch with you to see which loan works best for you so that YOU can have the final decision.
So are you ready to get started? CLICK HERE TO BEGIN YOUR VENTURE!