When it comes to working capital, all types of business funding require a business bank account, and most lenders will reject your application if you present personal bank statements rather than business bank statements.
Highland Opportunities put together a list of the most common reasons a lender could reject your loan application:
- Low & Inconsistent Cash Flow
- Not Enough Collateral
- Poor Operation History
- Dying Industries
- Not Enough Credit
Low & Inconsistent Cash Flow
Small to mid-sized enterprises with a significantly poor cash flow and an unpredictable revenue source are more likely to be rejected business funding than the majority. Lenders use the strength of the firm as measured by monthly cash flow to determine whether or not your company is high risk. Three months of business bank statements with daily transactions is usually sufficient to determine whether you are eligible for working capital.
Not Enough Collateral
When applying for working capital, some security may be required depending on the loan type product; however, this is usually not an issue for larger firms who hold real estate and significant price assets. When it comes to smaller firms in the early stages of development, it gets more difficult because most tiny enterprises have very little to show for their time in operation.
Poor Operation History
Most lenders will reward businesses that have been in operation for a long time and have demonstrated increased growth and overall sustainability. Lenders are wary of funding start-up companies that haven’t proved not only a large amount of time in operation, but also sustained success and market credibility.
Being in an industry that is being disrupted by new or superior products, services, or technology can have a direct impact on whether or not your company gets accepted for business financing. Everyone is familiar with the story of Blockbuster and taxi cabs being decimated by Netflix and Uber, and since then, most lenders have been keeping a tight check on the market to ensure that the business you’re in won’t default in the long run.
Not Enough Credit
Banks and most lenders have adjusted their credit score standards throughout the years, particularly since the 2008 economic crash. Unfortunately, many small businesses are still struggling as a result of the financial crisis, and some lenders will not even look at your file unless you have a credit score of at least 720, which is quite high for most small firms. Not all lenders are as stringent as smaller companies willing to make you an offer if you have a credit score of at least 640. If you don’t fulfill those conditions, the best option is to receive a merchant cash advance, which will allow you to establish business credit over time.