“If only I could get a small business loan for my business.” What a common thought by many of us! Business owners need small business loans and access to working capital to start, build or grow their businesses. Statistics abound on the reasons why businesses don’t succeed.
At the top of those lists of reasons why businesses fail are:
- Poor or lacking leadership.
- Inadequate or non-existent marketing plan(s).
- Not enough access to capital.
I would totally agree with the lenders and accountants of the world who also warn against excessive debt. But let’s remember that the excessive debt conversation is almost always about people who use capital poorly. I’ve yet to read case studies about business owners who properly acquired their small business loan or line of credit, then used the financing wisely and strategically, and then failed due to excessive debt.
So if we believe that financing, when acquired and used wisely, can be a great growth and expansion tool – what are the 3 most common mistakes that entrepreneurs and small business owners make that makes it difficult or impossible for them to get approved for financing? And what happens when these mistakes are made?
We see several hundred requests for financing each and every month. Here are 3 things that will hurt your chances of getting that small business loan approved.
Ways to Get Your Small Business Loan Denied
Lack of Strategy
You don’t know what your borrowing options are. So you apply for a loan(s) without having any knowledge or strategy behind the plan. In other words, there is no plan.
A plan would mean that you know what you can and can’t do, based on the lending solutions that are available to small business owners. When you boil it all down, there are probably 10-12 primary types of debt solutions that do not require you to give up ownership of your business. Do you know what those are and which ones are the best fit for you? Things like credit, industry, seasoning, location, collateral, cash-flow, reserves, your need/purpose, etc. will all be factors that determine your options.
Bottom line: With knowledge there is a path forward for you that either gets you that coveted financing now – or later. Get on that path and pursue your objective with a plan. Investigate startup financing options.
Failure to Treat Your Credit as an Asset
You’re not treating your credit as the asset that it is – or could be. There are a couple of simple facts here. You either have excellent credit that is robust with no blemishes, and low utilization on your credit cards – or you don’t.
If you are part of the 10-20% that have this excellent credit profile, are you protecting and preserving it as you start, build and grow your business? If you’re part of the 80-90% who have one or more issues with your credit (derogatory items, high revolving debt, etc.), what are you doing to intentionally improve your credit profile and FICO scores?
In the world of small business loans, you may not have as many options as you think just because you have great credit. But there are some good options when your credit isn’t so great.
The most common error here for small business owners is the improper use of credit cards. Don’t use personal credit cards for business. Why? One reason is because 30% of your FICO score is determined by your utilization percentage. Using personal cards guarantees you will hurt your credit profile and FICO scores. Ouch. Additionally, not all business cards are created equal. Some business credit cards report every month to your personal credit report. Ouch again. Don’t believe the hype about using personal cards for business because of their protection under the CARD Act.
Rates are higher since the CARD Act and you’ll hurt your credit if you use personal cards for your business. If you think you’re okay because you pay your bill in full each month, then think again. Credit card companies report the balances to the credit bureaus when they cut your statement and not after your due date. So 9 times out of 10, your balances are going to show on your credit report and lower your FICO scores. Paying your bill “on time” or “in full” will not change that.
Failure to Build and Grow Your Revenue
You’re not building and growing your revenue. It’s true that your financing options will increase and get better as your business gets older. However, this is mainly true if you’re growing your company revenue. Remember, Peter Drucker said that business all boils down to innovation and marketing and it’s your marketing plan (did I have the nerve to say “plan”) that will help you grow revenues.
Do this and your success, for both your business and financing needs, are within reach. Plans require research. They mean nothing without execution. So your research should bring you to marketing solutions like inbound marketing, content marketing, direct mail, etc.
These are the three things that are commonly ignored by small business owners as they grow their companies. Be informed. Knowledge is power. Leaders learn and grow and figure things out. So put yourself in the minority by being prepared for the financing you need to get your business to the next level.
Nobody said it was easy. But it’s also not rocket science…thank goodness for that.
Denied Photo via Shutterstock