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5 Reasons Your Company Might Be Denied a Business Loan

5 Reasons Your Company Might Be Denied a Business Loan

Invoice factoring for small business is a short-term alternative to business loans. By selling invoices to a factoring partner, companies can raise cash to meet all sorts of needs. That is important to know if your company has ever been denied a business loan. Invoice factoring is a legitimate alternative that might even be better in some cases.

Speaking of business loans, did you know that you have the right to know why your company was denied? Lenders must furnish you with detailed information upon request. That being said, there are some quite common reasons loans are denied. Some of them might surprise you. Here are just five reasons business loans are denied:

1. Poorly Developed Business Plan

Presenting a business plan with a business loan application is pretty standard. Lenders want to know where the company is, what it plans to do moving forward, and how it intends to get where it wants to go. A business plan explains all of that. At least it should.

Believe it or not, a poorly developed business plan is a red flag to lenders. They want to see that a borrower has a realistic idea of current and future business prospects. A poorly developed plan does not give them that assurance.

2. The Multiple UCC Filings

In the commercial sector, creditors often utilize Uniform Commercial Code (UCC) filings to establish a legal right to debtor assets in the event of default. Although a UCC filing is technically not the same thing as a lien, it is functionally equivalent. Therefore, too many UCC filings against a company could make it impossible to get additional business loans.

3. Poor Credit History

Companies have credit histories just like individual consumers. As you might expect, lenders look at credit histories to determine whether a company seeking a business loan presents an unreasonable risk. A poor credit history just makes it difficult for companies to get small business loans. Cleaning things up helps, but it takes time.

As a side note, factoring companies like Thales Financial are more interested in the creditworthiness of the customers whose invoices we buy. We aim for invoices that we are fairly confident will be paid, regardless of our client’s credit history.

4. Not Maintaining Separate Accounts

The smallest of small businesses might be run by a single owner and a minimal staff. In such cases, it is not unusual for the owner to not maintain separate accounts. His business and personal accounts are one and the same. Banking this way might be convenient, but it makes it difficult for lenders to distinguish between business and personal assets. This is a common reason for business loan denial.

Maintaining separate accounts is good practice. Not only does it make for easier accounting, but it also facilitates better tax compliance as well. There is nothing wrong with that.

5. Borrower Industry

Finally, small business loans are sometimes denied based on borrower industry. Some industries are just more risky than others. Lenders need to be cognizant of that risk and make their loan decisions accordingly. Therefore, do not be surprised if you operate in a high risk industry and have trouble obtaining small business loans.

As a reminder, we offer an alternative in invoice factoring. We base our service on a number of different factors that have nothing to do with how lenders make loan decisions. We can probably help you even if your company has been denied a business loan. If you would like to know more, feel free to contact us at your earliest convenience. Invoice factoring might be just what your company needs.