If you've been waiting around for awhile and have yet to hear any news from your lender, take a look at these five unexpected issues that may be delaying approval on your small business loan.
1. Your Personal Credit Score
Surprisingly, few business owners are aware just how big of an impact their personal credit scores have on their small business loan application. Yet, despite the number of times you've heard the importance of keeping business and personal finances separate, your personal credit score is one of the primary factors lenders will be considering as they review your loan application.
Along with your time in business, annual business revenue, and average business bank balance, your personal credit score plays a significant role in determining your eligibility for debt financing. And the younger your business is, the more importance will be placed on your personal score.
Make sure you are monitoring your personal credit score regularly, and check your personal credit reports through the main three credit reporting agencies--TransUnion, Equifax, and Experian--at least once every six months. If you see discrepancies or false information, reach out to the reporting agency to correct it. And in order to keep your credit score in great shape, make every effort to make payments on time, every time.
2. Unpaid Taxes
Your lender will likely ask to see your most recent personal and business tax returns to verify both your personal income and your business's annual revenue. If you haven't filed your taxes for this year, you'll want to either do so before you apply or provide your most recently filed year along with your extension paperwork for this year. If you are behind on tax payments or have filed an extension, your lender may have additional questions about the reason for your delayed tax payments.
3. Having a Tax Lien
Of course, the ultimate result of delinquent taxes is a tax lien--or a legal withholding of material property for the repayment of delinquent taxes--held by the IRS or state tax authorities against your business. Because a tax lien is a strong sign of unpaid tax debt, having an IRS lien against your business is a surefire way to halt your small business loan application from being approved.
4. Past Bankruptcy
There's no sugarcoating the reality that, according to research, businesses who have filed bankruptcy in the past are 12 times more likely to be denied for a business loan. Not only will having a recent bankruptcy on the books slow down your loan application, but you should also be prepared to pay between 1 and 1.6 percent higher interest rates than you otherwise would without the bankruptcy in your history.
With those statistics in mind, some business owners mistakenly believe that they are better off with their credit report not showing their personal bankruptcy. Remember, though, that if your bankruptcy isn't accurately listed, your report is likely showing numerous delinquent accounts instead. And that looks even worse.
While prospects for business owners with a past bankruptcy on their books may be grim, obtaining financing is not impossible. Consider looking into alternative forms of financing, such as a secured credit card, peer to peer lending, or an SBA backed microloan to fund your business comeback. These options may be more costly and have more limitations than a traditional bank term loan, but they will help your business get back on its feet in the years directly following your bankruptcy filing.
5. Too Much Paperwork
You could probably guess that having missing or inaccurate paperwork is a surefire way to slow down your small business loan application--but did you know that offering up too much documentation to your lender could have the same effect?
It's important to keep in mind that your lender is likely processing many small business loan applications each and every day. So as much as they need sufficient documentation to answer their questions about your business, bombarding them with an overwhelming amount of paperwork can result in more work on their end as they wade through your documentation to access the information they need.
Instead of sending your lender every single piece of financial documentation you can find, take care to provide only what they ask for in an organized way that they can process quickly and easily. Submit documents electronically whenever possible, and label each file with your business name, application number, submission date, and other keywords to help them identify the file type. The easier you can make it for your lender to process your application, the more quickly you'll get the answer you're waiting for.
With so many hurdles involved in successfully completing a small business loan application, it's easy to feel adversarial against your lender--as if they are looking for any and every reason not to approve your funding. In reality, though, quite the opposite is true. Most lenders genuinely want to help small businesses, and they are looking for reasons to approve your application. Do your part to handle any issues that may delay your application, and you'll be well on your way to funding the business growth you've been working towards.
Posted By: Robert Neal
Tuesday, December 8th 2015 at 6:50PM
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