Many small businesses need loans to fuel growth, manage cash flow, or purchase large assets.

But securing a loan isn’t always easy. According to a recent Federal Reserve report, only about half of small-business term loans, lines of credit, and cash advance applications are fully approved, with about a quarter partially approved and the remaining quarter denied.

Lenders need clear, consistent, and credible information on which to base their decisions.

Understanding the most common reasons for loan denial and taking proactive steps can boost your chances of success.

Here are eight key problems and potential solutions:

1 Poor Credit History

Problem: Along with your financial statements, lenders typically review your business and personal credit scores and reports to gauge how much of a risk you represent. If you have a track record of late payments, high usage of available credit, or simply not enough data points to paint a clear picture of your financial habits, lenders may view you as too risky of a borrower.

Solution: If you don’t have an established business credit profile, get started by activating trade accounts that report to the major business credit bureaus and maintaining business credit cards. Make it a practice to monitor your credit reports regularly for errors or signs of fraud. The three major business credit agencies (Dun & Bradstreet, Equifax, and Experian) offer an array of reporting and monitoring options at various price points.

2 Insufficient Cash Flow

Problem: Lenders need to see that you’re generating enough monthly revenue to comfortably cover loan payments. If cash flow is too tight, lenders will be concerned that a dip in sales or a bump in expenses will lead to delayed or partial payments or even total default.

Solution: Use accounting software to track and project your debt-service coverage ratio (DSCR), which can be calculated by dividing your net operating income by your total principal and interest repayments. Most lenders like to see a DSCR of 1.2 or higher. To boost your ratio, identify cuttable costs and put that money toward existing debts.

3 Lack of Collateral

Problem: Some forms of business financing, like mortgages and equipment loans, are secured by the assets they enable you to purchase. In other cases, lenders may require that you put up property, major equipment, or other fixed assets that could be liquidated if you cannot repay the loan. If your assets are already leveraged – or you have none – the deal could fall through.

Solution: Ask your lender about U.S. Small Business Administration (SBA) loans or other government-backed loan programs that may have less stringent collateral requirements. You may want to consider unsecured loans, which usually come with higher interest rates but can be easier to obtain.

4 Incomplete or Inaccurate Documentation

Problem: Lenders need clear, consistent, and credible information on which to base their decisions, and missing bank statements or incomplete application forms can indicate you’re not a reliable business partner.

Solution: Consider having an accountant review your application and supporting materials before submission. Also, maintain an open line of communication with your lender so that if any issues or questions arise during the application and underwriting process, you can address them promptly.

5 Weak Business Plan

Problem: Whether you’re a startup or a seasoned enterprise, a business plan serves as a view into your future success. Without a detailed, attainable business plan – including a market analysis, sales strategy, and financial projections – you’re liable to stray off course. You also won’t be able to demonstrate to lenders that you have a sound strategy for turning capital into sustainable growth.

Solution: Craft a robust business plan that expresses your long-range vision and how you intend to apply the help of well-chosen financing solutions. Review the SBA’s guide to writing traditional business plans and startup plans or other free online resources.

6 Not Enough Time in Business

Problem: Most startups don’t make it to maturity, and even those that do usually take a while to become profitable. Once you’ve been in business for two to three years, your chances of long-term success rise. For this reason, many lenders won’t extend credit to businesses under a certain age.

Solution: Talk to your lender about government-backed loans or grant programs geared toward startups or business acquisitions. Additionally, you should explore other avenues for raising capital, including investors, accelerators, and incubators, which may offer mentorship and technical assistance in addition to funding, often in exchange for an equity stake.

7 Legal or Tax Issues

Problem: If you or a business partner have gotten into legal trouble or had difficulties with the IRS, securing a loan can be especially challenging, even if other aspects of your application are strong. In some circumstances, it comes down to a lender’s judgment call, while certain offenses or liens on your record could be an automatic deal-breaker.

Solution: Be honest about legal or tax problems rather than waiting for adverse items to emerge later. If you have outstanding tax obligations, arrange a payment plan with the relevant tax authority and stick to it.

8 Risky Industry

Problem: Many credit scoring models consider the volatility of your industry in addition to your own financial behaviors, and many financial institutions set guidelines for what types of businesses they’ll lend to and on what terms. High-risk ventures like restaurants, tech startups, and agribusinesses are likely to face extra scrutiny.

Solution: Build a strong relationship with a lender that has experience with your industry. You may be able to offset the intrinsic risks of your sector by offering additional collateral or a personal guarantee. Also, revisit your business plan and diversify revenue streams, strengthen risk management, and optimize your market position for greater resilience.

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