Top 10 Reasons For Business Loan Refusal

by Jerry Bazata

In my last post, I wrote about the “2010 Small Business Jobs Act” that provides a wide assortment of tax breaks and incentives for small businesses.

Congratulations to all of the savvy DJs who have decided to move quickly on this opportunity!

Since you’ve only got until the end of December to act, I want to help you successfully complete the loan paperwork that will give you the monies needed to buy new gear, expand your business (or both).

You may even want to print out this post…

Interest Rates Are At Historical Lows

As a borrower you envision the worst: your financial information and credit history examined by a forensics investigator, under a bright light in an old-time crime drama.

If you’re seeking a loan for your DJ business, then you have much to be happy these days. First, interest rates are at historical lows, so the cost of getting a loan and the cost of financing remain favorable. Still, lending institutions do refuse to extend loans. So, whether you are attempting to borrow from the Small Business Association or another lender, here are the major pitfalls to avoid.

Top 10 Reasons Why Applications Are Denied

1. Incomplete Application: A loan officer hands you an application and the first words out of your mouth are, “Do I need to fill in all the blanks?” Not really, unless you want them to decline your application. Leaving information blank or incomplete only hurts your chances for approval.
2. Illegible Writing: You may be familiar with the term “Chicken Scratch”— a poorly written application. If you can’t read your own handwriting, do not expect the loan officer to be a specialist in handwriting analysis.
3. Inaccurate Statements: Do not include false or misleading information on the application. As a condition of the loan approval, the lender may ask for additional documentation to support such statements. This could become embarrassing and create a lack of trust between you and the lending institution, affecting future requests for credit.
4. Incomplete Financial Disclosure: The application will ask for account balances and a listing of debts. Be prepared to provide this information—and do not guess.
5. Loan Purpose: You would be shocked at the number of applicants who leave this section blank. The notion that just because you have good credit, the bank will loan you the money is not true. In fact, a financial institution can only lend you money for a legitimate reason. “Lady Luck is with you at the poker game” is not one.
6. Loan Amount: Using the phrase, “As much as I can get” will most certainly get you nothing but a decline. To any loan officer, this is a sign of desperation, and will suggest that you’ve been applying everywhere and this application is now your last attempt before you see “Louie the Loan Shark.” Be realistic in your expectation and only apply for the amount of money that will help you meet your financial obligations.
7. Unsigned and Undated Application: Need I elaborate any further? If you do not sign the application and date it, a credit report cannot be obtained and you will be declined.
8. Lack of Supporting Financial Information: In some cases you will be asked to provide third-party financial information such as tax returns, bank statements or credit statements. Be sure this information is current and accurate and is properly stated on your loan application.
9. A Co-Signer Will Always Get Me Approved: Truth to the myth is that if you cannot afford to pay the debt and you have bad credit, a co-signer will not improve your chances of getting approved. A co-signer is rarely accepted today, except for the case in which you have very limited credit experience. Having Uncle Fred as a co-borrower on the application because he has great income and lots of assets will not necessary increase your chances of approval. If the loan proceeds will not directly or indirectly benefit him, the bank will decline the request.
10. Inability to Discuss Your Financial Information: An effective loan officer will review your application face to face — especially with a business loan. Be prepared to talk about your financial performance both past and present. Be specific, and don’t talk in generalities such as “I’m doing much better this year than last.” Rather, “Sales have increased 10-percent over last year the same period and I project that I can do $100,000 in sales, as compared to $80,000 in sales from the previous year. The more a lender has to hunt for your information, the less likely you are to be approved.

Put Your “Ducks” In Order

Applying for a loan should not be a complex process. Take the time to review it carefully. Make a list of supporting documents that you are asked to provide, and then make sure that they are clearly photocopied and organized in the correct order. Prior to final submission, review the package with a lender to ensure that everything is prepared correctly. And lastly, be prepared to discuss all of the information contained in your application.

GOOD LUCK! May the groundwork you pave in 2010 provide great rewards for your business in 2011!

If you have any questions, post them in the comments section and I’ll reply.

Jerry Bazata – “Money Answer Man”

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