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Why Do Banks Reject Loans From Small Businesses

As a small business that is growing fast, you would need loans at different junctures, except you are recording large profit margins and exceptional sales. There are many options available for a small business to get a loan, but banks are the commonest for many people. However, many small business owners have lamented how banks now reject their loans request but prefer to be there for larger businesses. Follow closely.

Major Reasons Banks turn down loan requests from small businesses

  • Small Businesses often have a poor credit history

No one wants to help a business with poor credit history because there is no consistency with income. The fear for the bank would be that these small businesses may find it hard to pay the loans. Thus, as a small business that wants to get loans from banks or an angel investor, you should work on your credit history.

You might need to seek the help of a financial advisor to improve your credit record if it is bad. Once your record becomes good, you can expect a bank or investor to be willing to help. Click here to read more on how to get your poor credit history back on track.

  • Small businesses could be a high-risk business

You would expect big businesses to have high risks, but the truth is that they always mitigate their risks properly. Unlike these large businesses, small businesses cannot pull through their risk, and they have a higher chance of fading away. Once you grow big as a business, you would consider many factors before you fold up.

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However, a small business has nothing to lose. They can choose to stop being in a business, and banks can lose their loans or interest in return.

  • The cash flow of small businesses could be discouraging

You cannot expect much cash flow from a small business because of their income level. As a result, a small business may require a longer time before they pay the same loan a bigger business would pay at a shorter time. Also, the cash flow may not be consistent. This does not sound encouraging.

  • Inability to focus and retain customers

Small businesses often tend to be desperate because they want to make money. Due to this, some cannot focus and are unable to retain their customers. A small business could be offering a particular service at a time and change to a new one the next month. As such, they would have lost their customers and started the whole process of gaining customers afresh.

  • Poor business preparation

A good business plan is essential to get a loan from a bank or an investor. However, a poor plan will discourage banks as they show that one is not prepared. Poor business preparation is often common with small businesses, and it is the major reason they cannot survive competition with bigger companies.

Conclusion

The five reasons stated above can be improved on by any small business that wants to get their loans from a bank. If you can perfectly solve all these problems, rest assured that a bank will grant your startup the loan it needs.