Business loans can be great resources for getting the large funding that you need for your business. However, they do have some challenges that come along with applying for them. By understanding what these are, you can better prepare for them going into the future.
Not Having Enough Collateral
When you apply for a business loan, the lender may require that you have some collateral to put up. This collateral is comprised of one or more assets that the lender may seize in the event that you default on your business loan. If you’re a fairly newer business starting out, it can be challenging to have enough business assets to put up for collateral. You may need to put up your personal assets instead.
Poor Credit History
When you apply for a business loan, lenders are going to be looking at both your business and personal credit report. According to Lantern by SoFi, “In addition to a personal credit score, your business also has a credit report to reflect the health and risk profile of the company.” If your business doesn’t have a lengthy credit history, it’s likely that the lender’s approval decision will be heavily weighted by the information on your personal credit report. If you have negative items on your credit report, it could easily result in a denial of your business loan application.
Lack of Capacity to Repay the Loan
Lenders are very particular when assessing your loan application to determine if your business actually has the capacity to pay back the loan. If your business is newer and doesn’t have a steady stream of income, it can be hard to convince a business loan lender that you’re able to pay back the loan. Additionally, if you have lots of business debt or expenses already, then a lender may deny your application because it doesn’t believe your income is sufficient to cover all your debts and the new loan payment.
No Business Plan
When you apply for a small business loan online, the lender is going to want to see your business plan. This helps to outline what your business is all about, what your intentions are for the future, and so forth. When you don’t have a finished business plan, it can be a signal to lenders that you’re not quite yet ready to face the obstacles that come along with a business loan and being in business, in general.
Unaffordable Interest Rates
When you first apply for a business loan, you may notice that the interest rates are high. While you may try to convince yourself that they’re affordable, that’s not always the case. You should never take on a business loan that is not affordable for your business. Rather, change some of the other factors about your business and reapply to get a lower rate.
Now that you know what the most common challenges are that businesses face when applying for a business loan, you can position your company to have better approval odds on your next application.