Did you experience yet another business loan denial? Or are you letting an application for one sit there out of fear that it can get rejected?
Nonetheless, it is important to address the real question: why does a bank say “no” to your business loan application? From there, what are your other options?
One thing to clear up is that a business loan rejection doesn’t indicate a failing business. More importantly, you haven’t met the stringent standards of a traditional bank’s lending criteria. Thousands of profitable SMEs across the UK have experienced such rejection despite having strong growth potential.
Before exploring your options, it helps to understand the most common reasons banks turn businesses away.
Why Banks Reject Business Loan Applications
It’s no secret that traditional banks have rigid lending models designed to limit their risk. Protecting themselves is what they’re doing. At the same time, it creates a massive barrier for SMEs that operate outside of the standard criteria banks put together. Here are some of the most common reasons they may say “no” to SMEs like yours:
Limited Trading History
A traditional bank would prefer their clientele to have several years of trading history. This reason alone can be a major challenge for newer companies because banks see them as higher risk. Even if your turnover is growing quickly, it may not be enough to meet this very high expectation. Start-ups and young businesses along may face a mountainous climb to secure funding from a traditional bank given their limited trading history.
Poor or Limited Credit History
Credit scores still matter in traditional lending decisions. A missed payment, historic CCJ, or even limited borrowing history can play roles in negatively impacting your application. Nonetheless, businesses with a healthy cash flow still get rejected even for personal credit issues that were from several years ago.
Inconsistent Cash Flow
Banks know they sleep better at night knowing they work with clients who have stable and predictable revenue. When they see a seasonal business or a fast-growing company looking to secure funding, they see red flags. Even if the demand gets stronger for a business, banks may not even bat an eyelash because they see possible financial instability despite knowing the cash flow pressures such businesses face.
Lack of Collateral
Traditional lenders are the kind of institution that prefer secure lending. This means they want assets like property, vehicles, or equipment as security. A business that doesn’t own such substantial assets may not be able to secure funding via financial lending. The same applies when a business doesn’t want to risk their assets.
Industry Risk
Certain industries are considered “high-risk” by traditional banks. Specifically, they include hospitality, construction, transport, and even newer digital sectors. Your company may be wildly successful in these industries in particular, but don’t be shocked if a traditional lender scrutinizes you more than it needs to.
Existing Debt Levels
If a business like yours is already borrowing, some lenders may consider it a red flag. Even if you’ve made on-time payments, they may be extra cautious on the idea of whether or not you should secure additional funding.
A Bank Rejection is Not the End
If you think a rejection of a business loan from your bank is the end, think again. But there are alternatives to consider moving forward. For example, alternative finance providers such as Greenwood Capital offer unsecured business loans. Their approach is much different than a bank. Especially when they consider a much wider picture including:
- Business performance
- Current turnover
- Growth potential
- Customer demand
- Industry outlook
- Cash flow trends
If your business doesn’t seem like the right fit for conventional lending despite signs of strength, you may find that alternative finance providers could address your needs accordingly.
Why Unsecured Finance Is Becoming More Popular
A massive advantage of unsecured finance is flexibility. Your business is not required to put property or equipment at risk as collateral. It makes unsecured borrowing attractive for SMEs that:
- Do not own valuable assets
- Want a simpler application process
- Need funding quickly
- Want to protect their business assets
- Need short-term working capital
Since there is no collateral involved, approval decisions are typically much faster than the weeks or months a traditional bank application can take. Brokers like Greenwood Capital can present your application to a panel of over 70 lenders, meaning you don’t need to commit to several hard credit searches just to find the right unsecured business loan for your situation.
What to Do After a Loan Rejection
If your application is declined by a traditional bank, don’t panic. Instead, you want to reassess your options albeit strategically. Here are some other things to consider as well:
Review Why You Were Declined
Ask the lender for feedback so you can understand the specific reason for your rejection. This can determine what finance products are a better fit for you.
Improve Your Financial Position
It can take simple improvements such as reducing outstanding debt, organising accounts, or improving your cash flow visibility to strengthen future applications.
Consider the Right Type of Funding
Not every business needs a long-term loan in the traditional sense. Yours may benefit from a shorter-term facility. Thus, an unsecured loan just might be what you’re looking for.
Explore Specialist Lenders
Specialist brokers such as Greenwood Capital work with SMEs who need fast access to capital and may not meet traditional bank criteria – arranging unsecured and secured facilities across a panel of lenders to match businesses with the right funding for their situation.
Speed Matters In The Modern Business World
If your business needs capital, time is a vital thing. Traditional banks can drag on the process for weeks or even months. Such opportunities don’t wait for lengthy underwriting processes. Whether it’s purchasing stock, managing the upcoming seasonal demand, or making critical upgrades, delays can slow down the process. One more good reason why alternatives like Greenwood Capital make a lot more sense, especially when you can be approved fast.
Need To Find The Right Financial Partner? Contact Greenwood Capital Now
Your business shouldn’t have to wait for an eventual “no” from a traditional bank. If a loan is what you need without ever having to jump through higher hurdles, Greenwood Capital is ready to assist you. Have you got any questions or wish to apply for a business loan? Contact us today and we will be happy to help address your needs.
