For a small business to grow into a big business, it needs a loan unless it has exceptional sales and profit margins. A small business owner has quite a few places where he/she can go with a loan request. Banks seem to be one of their options on most occasions admin
. What these owners might not realize is that banks have recently developed a reputation for rejecting small business loans. It seems that banks are more interested in financing large businesses due to their benefits. A bank can come up with a variety of reasons to reject loan approval for a small business. Some of the common reasons are as under:
One of the barriers between you and the business loan is credit history. When you go to a bank, they look at your personal as well as business credit reports. Some people are under the impression that their personal credit does not affect their business loans. But that’s not always the case. A majority of banks look into both the types of credits. One of the aspects of credit that matter a lot to the banks is credit history. The length of your credit history can affect your loan approval negatively or positively.
The more information banks have at hand to assess your business’ creditworthiness, the easier it is for them to forward you the loan. However, if your business is new and your credit history is short, banks will be unwilling to forward you the desired loan.
You must be aware of the term high-risk business. In fact, lending institutions have created an entire industry for high-risk businesses to help them with loans, credit card payments, etc. A bank can look at a lot of factors to evaluate your business as a high-risk business. Perhaps you belong to an industry that is high-risk per se. Examples of such businesses are companies selling marijuana-based products, online gambling platforms, and casinos, dating services, blockchain-based services, etc. It is imperative to understand that your business’ activities can also make it a high-risk business.
For example, your business might not be a high-risk business per se, but perhaps you have received too many charge-backs on your shipped orders from your customers. In that case, the bank will see you as a risky investment and might eventually reject your loan application.
As stated earlier, your credit history matters a lot when a bank is to approve your loan request. While having a short credit history increases your chances of rejection, a long credit history isn’t always a savior too. Any financial incidents on your credit history that do not favor your business can force the bank to reject your application. One of the most important considerations is the cash flow of your business. When you have cash flow issues, you are at risk of receiving a “no” from the bank for your loan.
Your cash flow is a measure for the bank to know how easily you return the loan. If you are tight on cash flow, how will you manage the repayments? However, cash flow is one of the controllable factors for you. Find ways to increase your revenues and lower your expenses. Once you have the right balance, you can approach the bank for a loan.
A business plan is a written description of the future of your business and more importantly, how you are going to get there. It is a document that explains what you are going to do to make your company profitable and how you are going to achieve this. It defines both your business model and your strategies to make this business model work and more importantly profitable.
Normally when a business idea arises, you know what resources and capabilities you have at the start of your business and where you want to go in a certain period, usually in 3 or 5 years. But what is the way to reach that goal? Where to start? How to arouse investor interest? Even, how to get your business off the ground? Everything seems so easy when you have the great money winning idea and concept. It is how you are going to achieve these dreams and get enough money to keep the business going for many years to come.
Writing a business plan is to build a map that will guide you to where you start making money with your initial business idea. At is very basic structure, your business plan is a mixture of strategies and plans. It involves financials, marketing, staffing and products. Think of it as the foundation to your new business.
• To look for investors.
• To apply for a loan.
• To establish the viability of your business idea.
• To make improvements to your current business.
• To expand your current business.
It is a tool or document that describes a business opportunity or idea, the work team, the operational and marketing execution strategies, the business risks and the economic viability of your business. A well written document guides you to turn an idea into a viable business.
It can also be defined in another context in that the business plan becomes a fundamental tool within the analysis of a new business opportunity, a diversification plan, an internationalisation project, the acquisition of a company or an external business unit, or even the launch of a new product or service within the current business.
To summarise, both for the development or launch of a startup and for the analysis of new business investments, the business plan becomes an indispensable tool. So even though you have an established business, you will still need a business plan as you expand and improve that business.