It can be very frustrating when you are declined for a business loan and you can’t understand why you were declined. You provided everything that was asked for, yet it was not good enough. Sometimes it feels like if the person assessing the loan got out of the wrong side of the bed that morning that your application was doomed from the beginning.
Below are some things you can do to give your business the best chance of approval next time around.
Don’t delay giving your accountant information
Major Banks will like to see your accountant prepared financials or tax returns for the previous financial year. If you are applying after January then you will need to have the financials or tax returns for the previous year completed.
Also it is a great idea to get your book keeper/accountant to have your accounting program updated every quarter so a profit and loss and a balance sheet can be produced easily.
If you are not already, you should use a cloud accounting program so you and your book keeper/ accountant can keep the accounts updated on a regular basis.
Its not always about your business
Even though you have a separate business account and personal account and try to keep the two separate, Lenders will always do credit checks on the sole traders, partners, directors personal credit files before any loan is approved. So make sure you keep your personal credit file clean, even a $100 phone bill paid late that shows up on your credit file can be the only reason you get declined.
Don’t hide things
If you think you may have an issue on your credit file, be upfront and tell the lender in the beginning. They will appreciate your honesty and more likely to approve the loan if you explain it at the start. The lender may give you a verbal no before even doing a credit check which will make sure that your credit file doesn’t get even worse. Excess credit applications can affect your chance of credit.
Make sure that all of your income is being paid into your business bank account and declared. Apart from being illegal, not declaring income will negatively affect your chance for finance. In most cases the most important factor banks consider when approving loans is your level of business income. By reducing this income your loan is much less likely to be approved.
Why does your business need the money specifically? Is it to repair a piece of equipment, hire new staff or cash to get a project up and running? If you can prove to the lender that your business profits will improve by sourcing this finance, the lender will be more likely to give you the money. It will also help if you have a copy of a new contract or your accountant has done a cashflow showing what your business cashflow will look like after you source the finance.
The above tips will help you get approved at a major bank because their credit criteria can be strict. If you have been declined for the above reasons and are looking for a finance option, consider a Proxy Finance Unsecured Business loan or Line of Credit Facility; they are much quicker and easier to get approved.