Applying for a loan can feel like a panic attack, it’s uncomfortable and scary.

Back in the day financial institutions wanted to make the economy bulletproof but nowadays it feels like some institutions wanna to see businesses fail.

It’s starting to feel like they have to fill a “declined” quota to get a free blender at the end of the month.

But when did this happen? Why do they reject so many small to medium business owners?

We have some insight on why your local bank (the same one you’ve had a long lasting relationship with) declined you:

 

1. Be aware of your FICO score.

FICO analyzes your financial behavior (what you buy and how you pay for it) so they can determine if a line of credit will be good for you and if so, the rate, term, down payment and monthly payment that you should get.

Now, there are a lot of things we often do that can affect our FICO score, for example, all those times we forget to make our payments a day before the bill is due or even applying for a store credit at Best Buy (we all wanna watch the playoffs on a 60” flat screen am I right?).

Small things like that can affect your credit score in the long run, but at the same time, there are small things you can do to fight back and better your score.

• Set up Auto-Pay for all your bills.
• Keep track of your credit score and don’t waste it! Just inquire when you really need to.
• Don’t shop your credit around. The financial institutions you apply with won’t get a sense of confidence from you and your FICO score drops dramatically.

 

2. Develop a credit history.

Your credit history is like an athlete’s track record, to have a shot at that gold medal, you gotta have a good record.

Having a healthy credit history is important because it means that you are trustworthy and that you hold your end of the deal by making payments on time.

Your trade lines show what your financial records look like, this means amount credited, credit limit, balance owed, payment history, type of account and dates in which they were opened.

Don’t open a trade line just for the sake of it, it’s better to have some few but solid trade lines that are current than a lot of department store lines of credit in which payments are past due.

 

3. Provide accurate information on your paperwork.

This one is pretty simple, yet a lot business owners get declined because of missing or wrong information. When you’re filling out an application make sure you are being honest and cooperative because believe me when I say that putting false information will get you an instant decline (plus a dent in your credit). Use your FICO points wisely.

 

4. Be reasonable on what you want to get.

You want the best, top of the line, most expensive equipment? This can actually result on a declined app.

You have to be realistic and reasonable with what you want, need and expect. Punch in your own numbers, how much money do you have for a down payment, insurance for the equipment and of course your monthly payment.

It’s pretty simple, you need to make money and the piece of equipment needs to pay for itself plus make profit and look, it might not be the specific model you desire but it will help grow your business until you can have the best equipment out there.

 

5. Keep track of your cashflow.

Cashflow is one of the most important players in the financing game, you need to make sure your cashflow is healthy and steady. Lenders want to make sure you’ll be able to pay in time.

Small to medium business owners, sometimes have the cash but don’t deposit their cash into a business account so there’s no way of proving what the cashflow is or if it’s realistic and this is a risk that neither the lender or the business owner will take.

We always recommend that you deposit all your sales into a business account so that you can prove your cashflow and get approved.

Just follow these steps and your next banking experience will be a breeze.