Why your business loan was rejected

Published by MFAA

Due to the risks involved, strict guidelines are imposed on business finance, so securing approval can be difficult. Here are a few mistakes to avoid to increase your chances of approval.

Not knowing your credit score

Many consumers may not realise the importance of a credit score. Not only is it taken as a reflection of your ability to make repayments, it also highlights your financial history which is why understanding what it is and how it can be improved can be vital.

“I have seen cases where businesses were oblivious that they had a credit default until it was time to submit an application,” says an MFAA accredited finance broker.

Lack of planning

Understanding the assessment criteria and having a well-prepared application increase your chances of approval. The key things to be aware of when it comes to your application are a healthy debt to income ratio, existing business assets and a justified cash flow position, the broker explains. “This ensures that the lender has a full picture of what has happened and what the future forecasts are.”

Aside from providing these financial statements and forecasts, be prepared to discuss the purpose of the finance and how the business will service the loan. “Business owners need to articulate how they are going to use the capital and demonstrate how repayments will be made.”

Bad strategy

Longevity in a business is what lenders want to see and, in order to showcase that, a good strategy supported by financial statements must be in place, and those statements should be geared towards demonstrating strong earnings. “Many businesses are focused on minimising taxes and not maximising earnings,” advises the broker. “While there are tax advantages, not managing your business in order to demonstrate maximised earnings can have a negative impact when it comes to applying for a loan.”

Not having the right advice
Surrounding yourself with industry experts can provide you with a solid understanding of what needs to be included in your application, and a good equipment and commercial finance broker can match you with the right loan product. “A good broker understands that running a business can often leave you with little time, so ensuring you have someone qualified and trustworthy to do the legwork can be the difference between a success or decline,” says the broker.

MFAA accredited brokers can assist with business planning and finding the right type of finance to support growth and success. Find an MFAA accredited finance broker with expertise in commercial finance.