Ways to Overcome Business Loan Rejection

Capital is the fuel that keeps the engine of a business running. Whether it is a start-up that needs seed capital, a growing business that needs to expand or a maturing entity that wants to revive itself through innovation – every organisation needs money to survive and proliferate. Businesses need funds at regular intervals if they are not generating substantial profits.

Thus, entrepreneurs borrow from moneylenders and financial institutions to keep their companies afloat or purchase a business for sale Sydney. However, their loan applications get rejected by banks and moneylenders often because they deem the proposal to be risky. The reasons for the denial of the loan can be varied. If you know how to overcome them, you can quickly get the financing you need. So, here is a list of ways to avoid business loan rejection with effective preparation.

1. Build A Good Credit Score

The first thing that the moneylenders and banks will be assessing is the credit history of the entrepreneur. If you have outstanding debts and have defaulted several times while paying the past loans, it will work against your eligibility to get a new loan. Thus, if you wish to get funding, it is essential to maintain a good credit score.

Track your credit score and reports often to check there are no errors in the debts mentioned and get them corrected if required. Pay your debts off quickly without missing the payment due date. A low score will turn the moneylenders away, and a good score will make them consider the application. Make sure you do not have multiple applications because it indicates the financial instability of the business.

2. Improve Your Cash Flow

The best way to manage debts and their repayment are to increase the cash flow. Your accountant will help you implement cost-cutting measures to eliminate redundant expenses. Enhance the performance of the business by generating higher sales through increasing the price of products, cross-selling, upselling, discounts, etc.

Ask your accountant to ensure the business maintains a positive cash flow through effective financial management. The moneylenders and banks in Sydney examine the cash flow statement to understand the financial health of the business. The entrepreneur must maintain a higher income than expenses to get the loan.

3. Submit the Required Documents

When applying for a business loan, you must identify the criteria that need to be fulfilled to qualify for the funding. Also, you need to check the list of documents that must be submitted to get approval. If you think that the addition of a few more documents can improve your chances of securing the funds, you must do it.

You must be able to clearly communicate the need for the loan and its utilisation to the moneylender. Be honest and do not hide any information to showcase your credibility and creditworthiness. Get your paperwork ready on time and meet the person in charge for a meeting to discuss the details of the loan.

4. Manage Your Debts Effectively

As an entrepreneur, you should be aware of all the big and small debts you owe and their monthly repayment. These must include the business credit card bills, penalties, loan repayments, etc. The next step is to prepare a monthly budget to understand the income and expenses.

Keeping cash reserves for the debt money is vital if you are spending more than you are generating. Your accountant will help you to prioritise the payments to avoid missing the due dates. Also, you must make extra payments to pay off the smallest debts first. It will aid in reducing the interest amount to be paid and allow you to make savings for the repayment of the following loan.

5. Build A Solid Business Plan

Whether it is a start-up or an existing business, both need a concrete business plan to get loan approval. Banks need to know what the company is doing, why it needs funds, what will be the profit margin and revenue generated and what has been the performance of the business. All these questions get answered by the business plan.

It is a critical document whether you are starting up or wish to pump money into a recently purchased business for sale in Sydney. The moneylenders carefully evaluate the financial projections mentioned in the plan to understand the viability of the business. It helps them gauge if it has the capability to repay the loan or not. Thus, take the help of an accountant to make the estimations accurately.

6. Identify A Suitable Collateral

If you need to provide collateral, identify a suitable asset that can be used as a security for the loan. Taking out a loan against collateral is known as secured credit. However, providing collateral does not mean that you will get a loan for sure.

Usually, business owners offer a piece of expensive equipment or vehicle that will examine the asset and evaluate its cost. Ensure the equipment or vehicle offered is in top condition and well-maintained. In some cases, moneylenders can approve stock as collateral. Thus, you must get the valuation of the stock done by a professional to check if it can be proposed as collateral.

7. Successful Tax Planning

Tax planning helps the business to reduce its tax bills through tax-saving measures. However, if you are involved in tax evasion, you can get penalised by the Australian Taxation Office. It is vital to listen to the advice of your accountant, who will help you to claim business tax deductions applicable to your venture and minimise your tax bill.

When moneylenders observe efficient tax planning that saves money, they will give preference to the application. It indicates that the business has been managing its money. Thus, tax planning is highly significant for businesses seeking a loan.

Conclusion

Business loan rejection is common because of myriad reasons, ranging from insignificant cash flow to an incomplete loan application. Thus, preparing well before submitting the application makes sense to increase the chances of approval. Follow the tips above to tick all the boxes and quickly secure financing.