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Loan Rejection: How Your Small Business Can Avoid It


Whether you're a new startup or an existing company with hopes of expanding, there's a good chance that at some point or another, you'll need a loan for your business. The small business loan process is not one to go into unprepared, or you face the risk of loan rejection.

Before applying for a small business loan, ask yourself the following questions:

Have you Checked your Business Credit Report?

One of the very first steps you need to take before applying for a small business loan is checking your company's credit profile. Just like consumer credit reports, your profile will detail the credit history of your business. Credit profiles give lenders a way to gauge whether or not you'll be able to pay back your loan, and can often be the difference between loan rejection and approval. Don't wait until the bank runs your credit report to view it—you should be well aware of your credit standings, and prepared to explain any negative data to your bank.

If you get rejected for a loan because of your credit score, shopping around for another loan can worsen the situation. Every inquiry and loan rejection goes on your personal and business credit reports, and can prevent you from being approved at a later date.

Have you Prepared and Organized Detailed Financial Records?

If you plan on walking into your bank with a shoebox full of tattered bank statements, you better revaluate your strategy. Be sure to gather and organize all financial documents required by your lender prior to applying. Not sure what you need? The US Small Business Administration (SBA) offers a helpful checklist for small business loan applicants. Some banks also require personal financial information when applying for a business loan, so cover all your bases and prepare those documents ahead of time.

Have you Written a Business Plan?

Your bank will want to know where the money they're lending is going, so don't hold any details back when it comes to drafting up your plans, numbers, and goals. Treat the loan application process the same way you'd pitch your business to a client or investor—the more detailed and organized your business plan is, the more likely you are to steer clear of loan rejection.

Are you Borrowing Too Much?

Borrowing more than you actually need sounds great in theory—you're covered in the event an unexpected expense arises, and you could use a few extra cosmetic or decorative additions to your space. But the reality is, borrowing too much money can be one of the biggest mistakes you make as a small business owner. Be honest with yourself—is your business profitable enough to repay the sum you're borrowing? Are you taking out more than you need? If you borrow an amount that matches up with the profitability of your business, the likelihood of repayment increases—giving you a better chance at avoiding loan rejection.


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.