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The rate of approval for small business loans is typically fairly low, with rates among banks, credit unions and other lenders averaging between 20 and 40 percent. That means that far more entrepreneurs hear the word “no” from lenders than those who hear “yes.” While have a loan application rejected can be disappointing, it is even more frustrating to be rejected without knowing why. Many business owners coming away from being turned down for financing without having any idea why they did not qualify. In 2014, Pepperdine’s business school  conducted research that revealed the top ten reasons lenders reject small business loans. Learning from this list just might help your business be approved for its next round of funding.

1. Quality of earnings and/or cash flow
This basically means that applicants did not have stable, consistent and predictable earnings cash flow. “If earnings were higher this year but it’s because you had a big profit from a real estate deal and you’re a dry cleaner, that doesn’t count,” said Craig Everett, an assistant professor of finance.

2. Insufficient Collateral
Banks almost always require collateral of some sort for small business loans because of the high associated risk. Unfortunately, many newer companies do not have enough real estate, equipment, inventory or accounts receivable to pacify lenders.

3. Debt Load
Lenders do not like to lend to those firms who already owe a large amount of debt to others.

4. Size of Company

5. Customer Concentrations

6. Insufficient Credit
This often goes hand-in-hand with #8 – a business that has not been around very long simply does not have much in the way of a credit history or business experience.

7. Size or Availability of Personal Guarantees

8. Insufficient Operating History

9. Insufficient Management Team

10. Weakening Industry
If a specific industry is experiencing a shift for the worse, lenders will be very hesitant to invest in what they may be perceive to be a sinking ship.

By carefully combing the list for any of the above issues with your company and then doing all you can to fix the problem, you may soon be able to get the “yes” answer from lenders your company really needs.


Search for Small Business Loan Sources and receive your matched lender list
AND received FOUR free Business eBooks worth $39.95!
Search for Small Business Loan Sources