Do you Know why Your Small Business Loan was Rejected?

Published: September 8, 2021

How small businesses can avoid loan …

Last week I spoke about getting business funding for your small business through debt or equity financing. This week I will talk about various types of debt instruments for small businesses and why the business loans are turned down or rejected. Since 2007-2008 financial institutions are not lending to small businesses as they did before the mortgage meltdown crisis felt worldwide. However, like all things in the business world, where there is a gap, an opportunity is born. So it was with alternative financing for this group of entrepreneurs that traditional lenders were not serving.

Alternative Debt Instruments

Traditional banks are an excellent place to acquire money for your business if you are a large organization that has been around, but what if you don’t have the track record of your larger counterpart? This is why non-bank lending institutions came about to tackle the gap left vacant by traditional lenders. Donald E. Mitchell Agency, Inc. has developed under contract small business organizations that lend to small businesses with a track record of consistent cash flow within prospective borrowers’ small businesses.  Enclosed is an overview of these financial solutions for your business with a quick turnaround to money into your bank account.

Working Capital Loans

Things happen in business that causes entrepreneurs to have a shortage of cash. Cash is needed for a small business owner (SBO) to handle day-to-day business matters to keep the business running smoothly. SBO needs money to take advantage of opportunities that could leverage their business, and the opportunity will not be around forever; this is one reason for a working capital loan (WCL).

Working capital (WC)  is a financial process that a financial institution provides money for SBO to handle pressing business issues. The WCL can quickly provide needed capital to your business, generally with a three-day turnaround period, no mysterious fees or surprise payments, and cheaper than a merchant cash advance. There is no collateral needed, and the application process is simplified, and it is tax-deductible.

Business Line of Credit

 Business lines of credit (BLC) are great to have to deal with the uncertainty of business. SBOs, for the most part, want to grow their business, be it a renovation or expansion on the current business establishment or the addition of new equipment; all of these are examples of the need to have a BLC. The BLC can be granted in 48 hours, and the SBO can have access to the funds with a 24-hour right to use with 5-distinct loan drafts for the merchant’s usage.

Being prepared for the inevitable situation of things just going wrong is smart. SBOs recognize opportunities, and an SB that has an established credit line can take advantage of opportunities and, in some cases, negotiate a better offer due to having capital on hand to close the deal quickly. Especially restauranteurs, having a BLC, during this uncertainty of opening, closing, and now the wait and see transitioning to what will be done with the new delta variant, and a more recent one named mu is stated to be more aggressive than its other two predecessors.

Bridge Loans

Now that the economy has turned around, the forced establishments are now re-opened. Consumer confidence is high again, and so are opportunities. This type of loan is excellent when filling gaps in financing while waiting on other funding to come through, such as an SBA loan approvable that is not a quick process and can take months. This type of loan intention is to fill the void as one waits for another loan to be approved; this is a short-term financing assistance to the merchant.

Since the long turnaround severely damaged the restaurant and hospitality industries, these operators who have borrowed money from traditional sources and are waiting for funds, temporarily using a bridge loan will solve their financial gap. Flexibility and control are in the hands of the SBO, for they can use needed funds to cover the shortfall in the company’s financing needs. Your firm gains quickly the funds it needs without sacrificing growth or profits.

Reason Your Small Business has Gotten Rejected

Banks have many reasons not to fund projects by entrepreneurs; here are a few that you should be cognizant of:

  • One’s credit score; is one of the most common reasons banks reject a loan application because the lender views the entrepreneur’s credit score as too low. Entrepreneurs’ credit score has a factor in a loan to a small business, and a score of 500 typically is too low. So, the concept here is, if you can’t manage your personal credit, how reliable are you to pay back the bank’s money?
  • Lack of stable cash flow; banks favor SMB with a consistent revenue stream and money flowing in each month. A Small business that can not demonstrate such activity is denied significantly more for this reason.
  • Not enough time in business; entrepreneurs new to the business world with no proven track record will find it hard to borrow from banks. Banks look at statistics of success and payback, not the entrepreneur’s dream to be. Make sure your vendors are reporting your payment so you can build credit history quickly. A Suggestion of a minimum of 3- months of the business transaction when you apply.
  • Insufficient collateral; another area the banks look at from entrepreneurs is collateral; they are looking for an incentive for the entrepreneur to pay back is the psychological loss of a precious treasure if the loan is not repaid. However, this does not apply to larger organizations.
  • Your industry is too risky; some industries are more complicated than others; the restaurant industries have a higher failure rate of entrepreneurs going out of business. Another is the gambling business, so it is better to look for a specialist in this area and go to them for a loan if you are in this industry.
  • Debt-to-income ratio; having too much debt and not enough investment from the entrepreneurs is another area of concern from the lender. And especially if the entrepreneur has loans from other banks, that can be the kiss of a sweet NO. Lenders are leery of lending to entrepreneurs that have debt with other like-kind lenders. However, this is the case for small businesses and not for larger organizations.
  • No Business Plan; there have been studies showing the success of entrepreneurs that is tied to a business plan over those who do not develop them. Annette B. Haag, MA, RN, COHN-S/CM, FAAOHN., did a research paper in this area and found that those who did not have a business plan failed within the first 5-years of business-75%.

These are not the only reasons why banks will say no to entrepreneurs in the start-up phase of their business journey, but they are the most common. If you are a business owner and need quick access to unsecured operating capital, Click Here to apply. Must be open and operating for at least 12 months with monthly sales of $10,000 or more. Toll-Free (866) 400-3040 email:


About the author:

Dr. Donald E. Mitchell holds a doctorate in Entrepreneurship and Business Management works as a Small Business Consultant specializing in alternative financing, digital transformation, digital marketing, e-commerce, website development, and management software. He has offices in Southfield, Michigan, and Chicago, Illinois. His primary focus is on small business organizations.


 Based on several articles that have been published and cited through this article by the author. The author’s beliefs are personal and reflect his worldview and experience in the issues and practices mentioned. The author used some portions of the business plan were from his doctoral dissertation, Entrepreneurship in the 21st Century the business plan.

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1 month ago

This made for very interested reading. The author was very precise in
detailing the reasons for the banks rejecting loans. Some times it is
better to join a credit union and after a year or two the odds are
better at applying for a personal business loan with a good business
plan review. I think entrepreneurs such as this one is a step in the
right direction with help the small business stay afloat within the
first five years.

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