Cash is the lifeline of any business operation. Be it a start-up or an existing small and medium enterprise, you cannot survive the challenge of running a small business in the UK without the appropriate capital and funding sources.
Despite the available online sources a lot of small businesses struggle to get approved for a small business loan. Let’s find out 8 common reasons why a majority of small businesses fail to avail a loan despite the repayment capacity.
You believe it or not, as much as 50 per cent of new business loan applications are rejected due to low credits core. Despite the popular knowledge on how credit rating plays a key role in making you eligible for the loan, a lot of business owners check their score only after receiving the rejection slip. Surprisingly they assume that there cannot be anything wrong with their score and thus apply without assessing their credit rating. You can check your credit score free of cost online from any of the top credit bureaus such as Experian and Equifax.
Your past credit history also makes a crucial role in making you eligible for a loan. If you have been irregular in your past loan repayments or credit bills, it is likely that your loan application is deemed unworthy. It is important to ensure that you follow good financial habits and pay all dues on time. Also, you must make sure you do not leave a lot of credit card balance at the end of each month. Crossing your credit limit every month is also detrimental to your creditworthiness.
Likewise, a new startup by a young entrepreneur with no credit history is also not entertained by main street lenders. Small startups thus need a solid business plan to make the investors interested. You must submit a clear mission statement with estimated sales and profit projections.
Having collateral can help you avail unsecured business loans with more ease. However many small-scale businesses operate on rented premises. In case you do not have business assets to use as a promise of reimbursement, it may cause a hassle. A lot of business owners also use personal assets for business loans. For example: Despite the low score, you can apply for homeowner loan for a business. However, before taking such step, you must use professional loan advice of a loan broker.
Before approving a loan, a lender looks at your past records. They would assess if you can afford repayment of additional loans or not. If your company already owes too many unsecured loans and does not have enough assets, collateral or profits; and you have a high credit balance, your loan application loses weight. Herein using a professional advice, you must first close the high credit balance accounts. It is important to work on reducing the credit utilization ratio. For those who need emergency business loans shall apply for a cash advance with the help of recognized loan advisor.