Pitfalls Business Owners Face When Applying for Financing

Rejection is a hard pill to swallow – especially when you’re trying to grow your business or expand operations but get denied for much needed financing.  Most lenders or creditors look at many variables before extending credit – especially if you’re looking to get the best interest rates. They will scrutinize your company history, finances, and credit to determine risk.

Common reasons for business financing denial:

  • Poor or limited credit (business & personal)
  • Young business
  • No collateral
  • Loads of debt
  • Limited cash flow
  • Poor record keeping

Many business owners overlook the impact that business credit can have on their application. You cannot assume that your company scores and reports are strong just because you pay vendors and creditors, the majority of vendors do not report to the business credit bureaus. Since owners do not always understand the nature of business credit reporting, they do not see the implications it can have. furthermore, there is no regulation that forces the lender or partner to gain permission to review businesses credit. Companies can end up paying exorbitant interest rates and miss out on profitable opportunities due to poor or limited business credit.

What can a business owner do if denied for a loan?

First, don’t keep applying before you do your homework. If you keep re-applying and cause excessive inquiries, you will be hurting the business credit scores even more.

  1. You should speak with the creditor or lender who denied you.

  2. Ask them why you were denied, hopefully they will be helpful but that’s not always the case.

  3. Get a copy of your personal and business credit reports/scores.

  4. Evaluate where your credit is with a credit expert who knows about business loans as well.

  5. Make a plan to improve your credit before applying again.

With business lending there is limited regulation, unlike personal credit, lenders may choose not to disclose information on why you were rejected. The business lending representative you are working with may not have been told by underwriters all the factors that generated the denial. They may not even know both business and personal credit were used in decision making.

With a written request the business credit bureaus usually provide a free copy of your company reports and scores after application denial. Make sure to get all three reports – Experian, Dun & Bradstreet, and Equifax.  The bureaus do not provide details on each vendor who is reporting. This is to protect your privacy, so competitors don’t try use your partners, vendors, and creditors, but can make it hard to recognize whether the debt is being reported correctly. Business credit reports usually include industry codes for the vendors, but no other distinguishing information. Order your personal credit reports as well since most business loans or lines require a personal credit check as well.

The next steps will vary based on why you were denied:

  • Let’s say for instance that you were denied based on a lack of information on your reports, you would need to take the initiative to begin building business credit. Building business credit is not an overnight process it will take time to establish lines of credit and knowledge of what accounts will update to business credit.  Some company’s start placing orders to build their profile and have no idea whether the creditor updates payment information to the bureaus. Most vendors do not report positive payment data – this is what makes business credit building so tricky. Depending on the company’s needs you might want to use our concierge program for building business credit.
  • Maybe your business has established lines of credit, but you are now aware of negative or incorrect information damaging the scores. It is very common for erroneous information to land on business credit reports. In this case, you would need to consider repairing your business credit. This is a timely and complicated process, if not handled properly you can end up causing greater damage to the reports.

When a company needs fast-cash, but gets denied traditional funding, it’s easy for them to justify reaching for high-interest options. If you’re able to hold off for a bit or when using high cost financing, take the time to focus on a way out soon. It is more beneficial to your future to spend the time repairing and building the company scores. This will save a lot of money, maintain a higher profit, and stability for the company.

Here are steps that businesses must take when applying for financing that will help them prepare for approval.
  • Review your business and personal credit with an expert to fully understand how it works and what threshold would be viewed as excellent credit and place you in the lowest risk category.
  • Monitor business (and personal) credit reports.
  • Maintain strong financial records that include profit and loss reports, balance sheets, and a list of assets and debts.
  • Be able to provide several years of tax returns.
  • Be prepared for any large upfront costs that may be associated with the loan you’re applying for.
  • If you’re looking for a startup loan, make sure to have a detailed business plan prepared that explains why you need financing and how you will pay it back.

North Shore Advisory offers a Concierge Program for building business credit that is done in-house by our team of credit experts. We also offer a Business Credit Repair program for companies with established profiles who need damaging information removed. We will customize our services to fit the needs of your unique business. Reach out to us today for a free consultation.


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