Getting rejected for a small business loan is practically a rite of passage for entrepreneurs. Rejection rates can be as high as 73 percent with traditional banks. The odds improve a bit with alternative lenders. They generally approve around 57 percent of small business loan applications. However, the rejection rates can be disheartening.

 

Ready for some good news? Lenders reject loan applications for the same often-avoidable issues over and over. When applying for a loan, it helps to think like a lender. 

 

1. Not Enough Time in Business

 

Traditionally, banks require you to be in business for at least two years. An exception may be made for a (highly competitive) SBA loan, part of which is guaranteed by the government via the Small Business Administration.

 

While there’s not much you can do to speed up the clock and get more business history under your belt, you can look beyond traditional banks. Alternative lenders, including FINSYNC’s lending network, tend to have a less stringent requirement for time in business; one year is generally sufficient — even less in some cases.

 

It’s also worth noting that accuracy is important when reporting time in business on your loan application. Experience in a similar industry does not equate to time in business, and should not be treated as such when applying for a loan. What lenders want to know is how long the business that’s borrowing money has been in existence or incorporated.

 

While including past history may be a seemingly innocent error, this type of misrepresentation can easily cause your application to be rejected.

 

2. Asking for Too Much, or Too Little

 

We know what you’re thinking: Can asking for too little capital really hurt your chances of securing funding? In a word, yes — depending on whom you’re asking for the loan. Traditional banks commonly issue larger loans, on which they earn more interest.

 

Banks may be less likely to approve smaller loans that are under $250,000. Why? It’s all about the numbers. It takes banks the same amount of time, effort, and resources to service a seven-figure loan as a five-figure loan, on which they make much less money.

 

Alternative lenders, on the other hand, commonly lend smaller amounts than commercial banks, and the application process is generally much faster and easier. However, it’s crucial that you prove you can pay back the amount you’re asking for on your application.

 

Asking for too much without showing the lender exactly how you plan to repay will get your application rejected. If your current cash flow isn’t strong enough to comfortably cover the loan payments for the amount you’re requesting, you’ll need to detail future projections to show exactly how you’ll get there.

 

Increase your chances of getting approved for a small business loan by adjusting the amount you ask for based on who you’re applying with, and be prepared to prove that you can cover the amount you request.

 

3. Poor Credit

 

Both your personal and business credit can affect your chances of getting approved for a loan. Along with your interest rate should you get approved. Lenders often view the credit scores of majority stakeholders as a reflection of the company’s ability to repay the loan. The newer your business (and shorter your history), the more closely your personal credit will be considered — especially if you have not yet established business credit.

 

If you’re applying for a loan from a commercial bank or an SBA loan, your business credit will also be taken into account. Always check both your personal and business credit reports before you apply for a loan, and fix any potential errors that may be dragging your score down. If either credit score is low (below 600 for personal credit), it’s a good idea to take steps to improve it before applying for a loan.

 

If you’re worried about your credit for any reason, consider applying for a loan from an alternative lender. These lenders are generally more lenient when it comes to credit scores and pay closer attention to cash flow as an indicator of your creditworthiness.

 

If you have poor credit, you may also want to consider invoice financing or borrowing against your unpaid invoices. With invoice financing, your payee’s credit is weighed more heavily than your own.

 

4. Weak Cash Flow

 

When it comes to qualifying for a small business loan, cash flow is king. Lenders want to see that your business has enough positive cash flow to cover your operating costs — plus loan payments. Traditional lenders will consider at least one to two years of your cash flow history. Alternative lenders may look at as little as three months of your bank transactions.

 

Lenders also look at your ability to maintain a positive bank balance and, ideally, a balance that’s increasing steadily. If more money is going out than coming in, or the margin is too tight, your small business loan application may not be approved.

 

Need help improving your cash flow? In some businesses, getting paid faster is key. No matter what industry you’re in, a little planning and analysis can go a long way. Intuitive online tools can help you visualize, plan, and manage your cash flow — and even detail future projections that prove to lenders you can repay the loan amount you’re requesting.

 

For more details on the importance of cash flow management, check out this blog post.

 

5. Lack of Planning

 

When you apply for a small business loan, it’s important to make a strong case for your business. Remove any doubts a lender may have about your ability to repay the loan. Always define how you plan to use the capital to grow your business, and include a convincing business plan that explains exactly how you will repay the loan. You won’t give lenders much confidence without laying out a plan for the funds you’re asking for.

 

Being conscious of these common reasons small business loan applications are denied and taking steps to avoid them will help improve your chances of getting approved. And if you don’t? We’re here to help.

 

Unfortunately, nearly a quarter of all applicants who are denied a loan have no idea why they were denied. At FINSYNC, not only will we tell you exactly why your loan wasn’t approved. We’ll show you the steps you need to take to get approved.

 

How FINSYNC Can Help

 

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

 

As an entrepreneur, getting your business off the ground is one of the most difficult challenges you’re likely to face. In the early days, when you’re up and running but not quite yet established, capital to keep things going can be seemingly impossible to come by.

 

Traditional bank loans can be especially difficult to secure, as financers generally require at least a year or two of business history, along with a solid cash flow. What can you do when your startup needs money now?

 

Good news, you have options. Consider these six ways to fund your new business, from traditional avenues to others you may have overlooked.

 

Equipment Financing

 

Does your new business need a delivery van? A copy machine? A pizza oven? You may qualify for an equipment loan, even as a new business. While banks traditionally only extend financing to established businesses, equipment loans can be slightly easier to come by — and may even carry a lower interest rate than conventional loans.

 

Why? The rule with this type of loan is that it can only be used to purchase — you guessed it — equipment and machinery. This can be less risky for lenders because the equipment itself serves as collateral; if you default, the lender can take your equipment to cover the loan.

 

CollectEarly

 

If your business invoices its customers, and you need funding fast, CollectEarly may be a viable option for your startup. With CollectEarly, FINSYNC loans you money against the invoiced amount that your customer owes you. This can be especially helpful if you have a long payment cycle and can’t afford to wait for your customers to pay their bills.

 

CollectEarly can also be easier to qualify for than traditional loans. You don’t need a long business history, and approval is generally based on your customer’s credit rather than your own. Your own credit and cash flow are secondary.

 

You can also get funds fast, and the application process is fairly simple. With FINSYNC, you can essentially turn invoices into cash in one click — and your customers will never be notified that their invoice has been financed.

 

SBA Microloans

 

If you don’t need a large loan (over $50,000), consider applying for a SBA Microloan. For this type of loan, the Small Business Administration partners with community-based non-profit lenders to offer small business loans. These loans generally feature low-interest rates because the government guarantees a portion of the loan, which reduces risk for the lenders, especially when financing startups.

 

Low-interest rates and accessibility for new businesses make SBA Microloans competitive, but you may have a leg up if you run a minority-owned business or operate in a disadvantaged area. SBA Microloan lenders focus on local communities and often go beyond funding to provide business-based training and technical assistance.

 

Business Credit Card

 

If you have limited business history and solid personal credit, a business credit card may be a good way to finance your business. In addition to your credit, issuers will take a look at your combined income (business plus personal). The better your credit, the lower your APR will be. Beyond being fast and easy to apply for, business credit cards offer other perks.

 

Ideally, you want to pay off your balance in full every month to avoid paying interest. If you have good business credit, shop around for a 0% interest introductory offer to buy yourself some time so you can comfortably carry a balance for up to 15 months. You can also look for a card that offers a cash-back percentage or awards points.

 

Bonus: A business credit card helps you build up your business credit and establish that all-important business history.

 

Small Business Grant

 

While securing a small business grant from a non-profit or government organization isn’t easy, this “free” money (without interest or fees) can be well worth the effort — especially if you run a non-profit or mission-oriented business in a community that’s served by this type of funding.

 

Many grants are available for women and minorities, and the SBA offers a variety of grants as well. Keep in mind that small business grants are highly competitive. The application process can be lengthy, so this may not be a viable option if your business needs money fast.

 

Self-Funding

 

Though not without its risks, self-funding your new business is worth considering if you don’t qualify for other types of financing. Always use caution when tapping into any form of your personal savings, or borrowing money from friends and family.

 

If your business is incorporated, you may have the option to borrow from your retirement funds with Rollovers as Business Start-Ups (ROBS). This option allows you to use funds from your IRA or 401K (without immediate taxation) to cover new business start-up costs. Downsides include high fees, increased IRS scrutiny, and, of course, the risk of losing your retirement savings.

 

If you have excellent personal credit and solid income, a personal business loan may be an option. Just remember that your personal assets are on the line if you default. The same goes for a home equity loan. While this may be a viable source of funding for your new business, you’re at risk of losing your home if your business struggles and you’re unable to make your loan payments.

 

The Bottom Line

 

A traditional loan that may seem out of reach isn’t the only way to fund your new business. Think strategically to access the capital you need to keep your business running in the often challenging early days. Always be sure to weigh the risk and effort involved when considering sources for funding your startup.

 

How FINSYNC Can Help

 

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

Cash flow is the lifeblood of any small business, as you no doubt are well aware. How else are you going to cover expenses, pay employees, and keep things running — not to mention qualify for financing when you need it? Needless to say, overdue payments can put a serious kink in your cash flow.

 

More than 80 percent of small business invoices in America are over 30 days past due. Not only that, the average small business is buried under more than $80,000 of unpaid invoices. And while late payments can cripple a small business, there are several steps you can take to bypass this common problem.

 

Getting paid in a timely, reliable manner is one of the best ways to bolster your cash flow. We know what you’re thinking: easier said than done. Follow these five simple strategies to get paid faster in order to maintain a positive cash flow.

 

1. Invoice Immediately

 

Waiting until the end of the month to send invoices can cause significant payment delays. Cut down the time it takes to get paid by invoicing immediately after delivering your goods or services.

 

Are you still sending out paper invoices? It’s time to consider electronic invoicing. While emailing PDF invoices is a step in the right direction, there are myriad benefits of a more sophisticated online invoicing system (see #5), the first of which is immediate delivery of your invoices.

 

Electronic invoicing also lets your customers know that they’re dealing with a professional; you’re not likely to forget about an invoice, much less let it slide past the due date.

 

2. Shorten Your Payment Terms

 

Are you giving your customers too much time to pay you? As tempting as it may be to offer favorable terms in order to close a deal, consider the strain on your cash flow if you offer 60- or even 90-day payment terms.

 

If you maintain a good relationship with your customers, 30 days should be sufficient. Just make sure to define your payment terms upfront and in writing. 

 

Learn how FINSYNC helps to combat the most common small business payment challenges and improve your cash flow management, security, and overall efficiency.

 

3. Provide Incentives

 

Incentivizing early or on-time payments can help you avoid the hassle (and headache) of tracking down late payments. The incentive is up to you and could be anything from a small discount (0 to 5 percent) to non-cash rewards that are specific to your business.

 

You may also want to establish penalties or interest for late payments. Always consider the value of the client relationship before enforcing penalties. A first-time warning or flexibility for extenuating circumstances will go a long way to strengthen that all-important client relationship.

 

4. Offer Flexible Payment Options

 

Put yourself in your customers’ shoes. How would you prefer to pay: Write a check and send it through snail mail, or pay the invoice online with one quick click? Make it as easy as possible for clients to pay you, and you’ll get your funds much faster.

 

Offering your customers more ways to pay is another simple way to speed up payments. Clients will appreciate the ability to pay with a credit card via bank draft (ACH) or PayPal.

 

5. Automate with Invoicing Software

 

Intuitive invoicing software can simplify all of the above, streamline your invoicing process, and make it much easier to get paid faster. These online tools are a win-win for both you and your clients. Not only does the software make it simple to send invoices immediately, it makes it easier for your customers to pay you.

 

Forget about endless reminders and uncomfortable phone calls about past-due invoices. Online tools allow you to set up alerts to automatically remind customers when payments are due or past due. Better yet, you can set a recurring invoice schedule and even activate auto payments, which are the gold standard for getting paid on time every time.

 

When it comes to shoring up your cash flow, these minor efforts can pay enormous dividends. Once your invoicing system is set up to help you get paid faster, you can begin to rely on consistent cash flow that keeps your business in the positive.

 

How FINSYNC Can Help

 

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.

Are you still using personal accounts to run your small business? Separating your personal and business finances is a good idea for many reasons. For one, you don’t want your personal assets on the hook if your business falls on hard times (read: bankruptcy or a lawsuit).  

 

Do You Need Business Credit?

 

While building business credit takes time, there are several benefits that are well worth the effort. Not only will you protect your personal credit and limit your risk, but business credit can also help you get approved for a larger small business loan at a lower interest rate. With business credit, you’re also less likely to be asked for a personal guarantee.

 

If you are applying for a small business loan from a commercial bank or an SBA loan, you will need business credit. Online lenders are often more lenient when it comes to credit scores and pay closer attention to cash flow as an indicator of your creditworthiness.

 

Let’s not forget about personal credit. Most lenders will pull your personal credit — especially when they ask for a personal guarantee or your business is new and you have yet to establish business credit. An excellent personal credit score will boost your chances of getting approved for a small business loan, while less-than-stellar credit can be a red flag for lenders.

 

How to Establish Business Credit

 

If you haven’t already done so, establishing a business entity that’s completely separate from your personal finances is the first step. If you’re currently operating as a sole proprietorship or general partnership, you’ll need to incorporate or form an LLC.

 

Corporations and LLCs file their own tax returns and have a credit score that’s completely separate from your own. To incorporate, you’ll need to apply for a Federal Tax Identification Number (EIN), which is essentially like a social security number for your business.

 

Be sure to open a business checking account in your legal business name and use it to pay a credit card that’s also in your business name.  Neither of these should be tied to your personal accounts. It’s also important to set up a business phone line in the name of your corporation and get it listed in the 411 directory.

 

Not only will this allow suppliers and lenders to verify your business during underwriting, it will also give you an opportunity to build your credit history and boost your rating by paying your phone bill on time. Put any utilities in your business name as well for the same reason.

 

You’ll also need to get registered with the business credit bureaus. Get a DUNS number from Dun and Bradstreet and register with business credit bureaus like Experian and Equifax.

 

How to Build Business Credit

 

Now that you’ve established your business credit, it’s time to build it up by applying for credit. Vendors and suppliers are an ideal place to start. Financing regular purchases, such as office supplies, is one of the most efficient ways to build your business credit.

 

Secure a line of credit or negotiate payment terms from net 30 to net 60 days, and always pay your invoices on time. On-time payments seem obvious. Although, it’s worth noting that a late payment can impact your business credit score for as long as seven years. Once you establish a good relationship with your vendors, you can work your way up to revolving credit lines.

 

Note that not all vendors report to credit bureaus, so check your credit reports and make sure to open accounts with a few vendors that report to a variety of commercial credit reporting agencies.

 

Are you looking to get a credit card for your business? Take a look at our top pics based on benefits.

 

Keep an Eye on Your Credit Report

 

Errors on business credit reports are somewhat common and can lower your credit rating. It pays to monitor your business credit reports with various agencies regularly.  Then, you can report any errors and have them corrected. Here is a list of the things you should know about your credit report.

 

Remember to be patient. The longer your credit history, the higher your rating. What’s the fastest way to build your business credit? Once you’ve established accounts with vendors that report to the business credit bureaus, pay your bills on time, in full. 

 

The reward is worth the wait: You’ll have greater access to funding and save money with lower interest rates.

 

How FINSYNC Can Help

 

FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.