Were you denied a small business loan? Here are 3 reasons why

If you’re an entrepreneur who applied for a small business loan in order to expand your company, only to find yourself on the wrong end of a rejection stamp, you’re not alone. In fact, according to a survey conducted by the Federal Reserve Banks of New York, Atlanta, Cleveland and Philadelphia, half of all loans for small businesses filed in the first half of 2014 were rejected.

Suffice it to say, rejection stings. Whether in dating, after a job interview or at the bank, putting yourself out there only to be told “no” is a painful feeling, so much so that the fear of it discourages others from even trying in the first place. But it shouldn’t, because there are so many different reasons why a bank may turn down a loan application, that trying again with a different lender can make all the difference.

Here are three reasons why applications for small business loans may be rejected:

• Didn’t do the paperwork ahead of time: According to the Small Business Administration (SBA), business owners looking to apply for a loan should have the following prepared in advance: a written business plan, financial statements or projections, tax returns, bank statements, personal credit reports and business credit reports. Walking into a bank, expecting to sign a simple form without having any of this other material ready and waiting, is a recipe for rejection.
• No collateral: Banks will frequently need collateral from an applicant before agreeing to a loan. “Collateral” refers to the physical property you own that can be claimed by the bank in the event of non-payment. However, many small business owners — particularly new ones looking to expand their company — may not have any business real estate or equipment to use as collateral, and may also be hesitant to use personal assets like their home or car as a substitute.
• Small business lending may present too great a risk for some banks: “Post-recession, banks became more risk-averse and unfortunately, small business loans are inherently riskier than large business loans or even consumer loans,” says Rhea Aguinaldo, entrepreneurship manager for the advocacy group Small Business Majority. In cases like these, writes NerdWallet, “some small business owners have better luck getting loans from community banks, where they have relationships with the bank staff.”

Were you recently denied by a bank for a small business loan? Consider Growth Capital Corp. instead. We offer long-term, fixed-rate affordable financing for local entrepreneurs looking to grow their companies, and review each application for loan eligibility on a case-by-case basis, regardless of a prior bank rejection.