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8 Reasons why your business loan was declined

Capitalise Sep 15, 2023

When you're running a business, there may come a time when you need to secure additional funds to fuel growth, cover operational expenses, or invest in new opportunities. Applying for a business loan can be a crucial step in achieving these goals. However, receiving a loan rejection can be discouraging and leave you wondering what went wrong. 

The first thing to bear in mind is that it isn’t anything personal, lenders have rigid criteria and can decline business loans for a variety of reasons. It’s also worth noting that just because you have been declined by one lender, it does not mean you will be declined by all. There are many different types of business loans that suit different businesses, working with an expert will help you to be matched with a lender that might be better suited to you.

We’ll delve into the common reasons why your business loan application might have been declined and offer insights on how to improve your chances in the future.


1. A poor business credit score

One of the most important factors that lenders consider is your business credit score. A poor business credit score indicates potential financial instability and makes lenders hesitant to lend money. It will also indicate that a business is not creditworthy and doesn’t instil confidence that a loan would be repaid. Any adverse credit information, such as a poor payment performance or a CCJ would also indicate a history of not paying on time, affecting a lender’s decision to offer a business loan. 

Before applying for a loan, make sure to review your business credit profile, address any inaccuracies, and work on improving your credit score over time. 

If you have a poor business credit score, use the Credit Review Service to have your credit score reviewed by Experian. In 96% of cases a credit review results in an improvemet.


2. Inadequate cash flow

Lenders will assess your business's ability to generate steady revenue and repay the business loan over the term period. If your cash flow projections are uncertain or show inconsistency, it could be a red flag for lenders. Demonstrating a healthy and predictable cash flow is crucial for a loan approval. 

You can create a cash flow forecast to create an accurate prediction of your future cash flow and support your business loan application. 


3. Lack of collateral

Collateral in the form of an asset or property serves as a security for lenders in case you default on the loan. If you lack sufficient assets to offer as collateral, or if the assets you do have are not considered valuable enough, lenders may be hesitant to approve your loan. 

Consider exploring alternative financing options that don't require collateral, such as unsecured business loans, a revolving credit facility, or a merchant cash advance


4. Incomplete documentation

Submitting incomplete or inaccurate documentation can lead to a loan rejection. Lenders require a comprehensive understanding of your business's financial health, including tax returns, bank statements, profit and loss statements, and more. Double-check all the necessary paperwork to ensure you're providing a complete and accurate picture of your business.

Working with an expert will ensure that you are submitting the right documents and information to a lender. When you apply for a business loan with Capitalise, a funding specialist will work with you to create a complete application including everything the lender will need.


5. A high debt-to-income ratio

Lenders assess your debt-to-income ratio to determine your ability to manage additional debt. If your existing debts are too high compared to your income, it can signal potential repayment challenges. Focus on reducing your debt burden before applying for a loan, or consider refinancing existing debt to improve your ratio.


6. A limited trading history 

Many lenders want a business to have been trading for a significant period of time to approve a business loan. The minimum requirement is often 2 years trading history as this demonstrates to the lender that the business is viable and is consistently turning over income.

If your business is under 2 years old, you could consider applying for an alternative form of business financing, such as a business credit card or business overdraft in the short term. This will also allow you to build up your credit history so that you will be in good stead to apply for a business loan once your business is older. 


7. Industry risk and economic conditions

External factors, such as the industry you operate in and the overall economic conditions, can impact loan approval. Lenders may be more cautious about industries prone to rapid changes or economic downturns. 

There are lenders and lending products that specialise in almost every business sector. If your business loan was declined because of the industry, try to apply for a loan that is more tailored to your business. For example, if you work in construction, an invoice finance provider might be a more suitable option. 

When you speak with one of our funding specialists, they’ll help you to apply to lenders that specialise in your sector to improve your chances of approval next time. 

8. You applied to a traditional high street bank 

As the most widely known lenders, the high street banks might have been your first port of call when considering a business loan. However, traditional high street banks have strict criteria, requiring high turnover and profitability, strong business credit scores and a long trading history.

If you were declined for a business loan from a highstreet bank, consider alternative options that may have more appetite to lend to small businesses. At Capitalise, we work with 100+ lenders, offering access to the whole marketplace so that you can find a lender that suits your business. 


While receiving a business loan rejection can be disheartening, there is a way forward. By addressing the potential issues outlined above, you can enhance your chances of securing the financing your business needs. If one lender declined your application, don't be discouraged; there are various financing options available in the market, so explore alternatives that align with your business's needs and financial situation.


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