If you’re considering taking out a business loan to finance your business expansion or a new venture, you’ll likely face some challenges in qualifying for it. Being aware of these roadblocks can help you prepare for them and increase your chances of qualifying for a business financing loan.
Here’s what you need to know about these business loan qualification factors:
Low Credit Scores
Credit history is one of the most important factors in qualifying for a loan. A lender will look at your credit history and use your credit score to determine the likelihood that you will repay the money you borrow from them. If your credit score is below average, you will likely have difficulty qualifying for a loan.
To improve your chances, you should pay all of your bills on time, avoid opening new credit cards until you have paid off your current ones, and keep your debt-to-income ratio low.
Limited Cash Flow
If the cash flow of your business is not sufficient to support your business loan repayments, this may also make it difficult for you to qualify for a loan too. Before approving a business loan, lenders ensure that the cash-flow gap isn’t too large. On the other hand, positive cash flow may make it easier to qualify for a loan as it indicates that your business will be able to generate enough revenue to meet your loan repayment obligations.
No Business Plan
If business loan agents get the impression that you don’t have a solid business plan and don’t know where you want to take the business in the future, your application will likely be rejected. Setting out a clear plan for your business is a must if you want to get a loan to support its growth.
A solid business plan will also help you identify growth opportunities for your business and show you how to increase your revenue in the long term.
Incomplete Financial Records
Business financing loan applications must be supported by detailed financial records, including financial statements and tax returns. If your lender can’t verify that your business can generate sufficient revenue to meet loan repayment obligations, your application may be rejected. Ensure that the documentation you provide is up-to-date and accurate before applying for a loan.
If you have taken multiple loans in the past and you have high debt-to-income ratios, your lenders may view this as a risk and may reject your application. Too much debt can impact your credit rating and make you ineligible for certain loans. Consider limiting the number of loans you take and having only one open at a time, as most credit bureaus and lenders see it as a red flag.
If you’re looking for a reliable business financing agent, we can help! At Whitestone Fund, our agents can help you with short-term loans, merchant cash advances, and financing solutions for small businesses, with amounts up to $1,500,000.