Small business owners know that there are times when a business loan is critical to the survival of their business. It may be necessary to get a loan to expand, cover unexpected expenses, or float expenses until a contract payment is received. However, many small business owners have discovered in recent years that it has become more difficult to obtain a loan. This difficulty is due to new standards that have been put into place since the financial market meltdown of 2008.
The denial of the loan application may not even have anything to do with your credit score. In fact, banks have begun to deny loan applications for many unusual reasons, including:
1. Lack Of Current Business Plan. Banks want to see a current business plan with 1, 5 and 10 year projections contained in the report. They want to see that you have plans in place to be successful for a long period of time. Banks have become very wary of businesses without a current business plan because they feel that the business owner does not have a plan for success in place. Lenders feel this could leave the business in upheaval if another fluctuation in the economy occurs.
2. DUI Conviction. If the business owner has a DUI conviction the bank may feel that they are a high risk. A DUI is viewed as something that occurs when a person acts irresponsibly. Banks do not want to give money to someone that may not use the money responsibly. In addition, the potential for the owner to commit the offense again and have to serve jail time, making it impossible to repay the loan, is something that the bank will consider too high of a risk to lend money.
If you are awaiting trial for a DUI charge it is a good idea to consult a DUI lawyer to review your case and avoid a possible conviction. The following quote appears on www.jackdiamondlaw.com: “You have a number of constitutional rights protected by the Fourth, Fifth and Sixth Amendments of the U.S. Constitution, which allow you to decline from providing evidence against yourself. By exercising those rights, you greatly protect yourself in an OUI arrest.” To protect yourself and your business you should pursue every option to remove or avoid conviction altogether.
3. High Debt. In the past it was very common for small businesses to run with very high debt. It was an accepted part of business. Now, however, banks are not very kind to businesses that have high debt burdens. They prefer businesses that own equipment instead of leasing and they approve of low debt ratios to suppliers and other vendors.
4. Outdated Marketing Plan. If your business is not geared at gaining new business by utilizing current marketing methods such as a website, social media, and direct contact with potential clients, they will look at you as a high risk. Remaining with outdated marketing methods means that your business has the potential to be overlooked by younger consumers and larger business entities. Without the potential for new clients, you cannot repay your loans.
5. Organizational Set Up. Many banks have begun declining loan applications for sole proprietorships. This is due to the fact that personal financial trouble can impact the business. Banks prefer to lend to corporations and limited liability partnerships. Understanding what banks are looking for before you apply for a loan can help you make sure that you are approved.
Review this list carefully and try to make improvements where possible. If you do not meet all the criteria listed here, it does not mean an instant denial. However, the more positive things you can provide to the bank when you apply for a loan, the better your chances of being approved.
Valerie Stout Cyrus is a freelance writer who frequently researches small business and DUI issues. She discovered that Jack Diamond Law, www.jackdiamondlaw.com, successfully represents individuals who are charged with drunk driving, keeping their future business plans on track.