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8 Negative Factors Banks Will Focus On When Issuing A Loan

When applying to a bank for business funding, you should be aware of all the factors that may cause a bank to reject you. If you think there are factors that will make it difficult to get approved for a loan, take the necessary steps before applying for it.

  1. Poor Credit or Lack of Credit

You should have a good credit history when applying for a bank loan. As a rule, you’ll get approved for a bank loan if you have a personal credit score between 680-720. Also, you should prove you can manage your budget appropriately by showing, e.g., you’ve been paying your bills on time.

  1. You’re a New Business

Banks prefer businesses that have been in business for a long time or individuals who have been in business for at least 3-5 years. Banks need to know you’ll be able to pay back the loan.

  1. Low Cash Flow

Banks usually focus on periodic payments, meaning the daily or weekly direct debit payments made from your business checking account, as opposed to monthly statements. They will want to see consistent cash flow that can help you with the mentioned payments.

  1. Small Loan

If you’re applying for a small loan, you won’t probably get approved. To solve the problem, consider turning to a reputable alternative lender like First American Merchant (firstamericanmerchant.com). FAM is a top business loan provider and payment processor that specializes in the high risk industry. Bad credit history is not a problem for First American Merchant. Merchants of any type and size can get approved for business funding from FAM.

  1. Lack of Collateral

Collateral is quite important for banks as they can acquire assets like business equipment, real estate, etc. in case you are unable to repay the loan. These are referred to as secured loans. New businesses usually don’t have collateral and may have to put a lien on their personal property or look for an unsecured loan.

  1. Not Being Prepared Enough

Banks will want to review your business plan, market or financial projections. You should be well prepared to explain the purpose you’re applying for a loan and how you’re going to repay it.

  1. Bankruptcy or Legal Issues

Banks will consider you risky if you went bankrupt 2 years ago or had a judgment placed on you within the past 12 months. You won’t be approved for a loan, but you can improve your credit and apply for funding later.

  1. Lack of Big and Diverse Market

Extremely small target audience can’t help you grow your business. Banks will want to see you have a big and diverse market.

It’s not easy to get approved for a bank loan. However, if you’re in need of business funding, banks are not the only option to try. Consider turning to an alternative lender to maximize your chances of getting approved for a business loan.