Business Plan Writer for Companies Raising Capital

5 Reasons Why Banks Say “No” to Your SBA Loan Application

5 Reasons Why Banks Say “No” to Your SBA Loan Application

2020 was a life changing year for many of our businesses. Although many have discussed the Payroll Protection Program (PPP) and Emergency Industry Disaster Loan (EIDL), there’s less discussion of the expansive traditional loan programs that the SBA is promoting and its more lenient terms.

If entrepreneurs have ever thought about starting or buying a business, the time is now. But how do you receive a YES to your SBA loan application?

It goes beyond you being a dynamic business owner whose company would explode in revenue growth if they had funding to promote themselves and hire more staff. You may have a great and innovative idea but the bank might still say “no”. By interviewing financing officers from various banks, we discovered the main reasons that technicians are denied funding. These are five common reasons that banks deny loans to business owners.

1) Inadequate collateral or credit. Each bank defines “adequate” differently. The amount of collateral or appropriate credit score needed depends on the loan program you qualify for and other factors. For example, there is a loan program in Virginia that helps business owners with limited collateral. Never assume you don’t have enough of either – instead you should speak to several bankers and discuss your options.
2) You didn’t prove the market opportunity or your competitive advantage. In our economy, having a competitive edge is crucial is capturing part of the marketplace. Your job as a small business owner is to prove to the bank that you can reel in consumers and give them proof about how you are going to accomplish this. Stating “if we get 1% of the marketplace, we’ll make $30 million” is not enough to make the bank feel comfortable in investing in your business.
3) You didn’t prove a solid customer acquisition and retention plan. If you can’t get paying customers through the door and keep them coming back for more, you’ll never make it as a business. If your company is just starting out, include how you will entice customers to visit your company and what you will do to encourage them to return. Show how your practice will stand out from others near your area. If your business is established and you are looking for funding to grow, show the bank how you have brought in paying customers in the past and how you will grow exponentially.
4) You didn’t prove your team can reach its goals. Entrepreneurs are often denied funding not because they didn’t have a great and innovative idea but because they surrounded themselves with a team that was not effective in helping to reach the company’s goals. When you are organizing your team, keep in mind how each member will contribute to the welfare of the business. Not everyone can be a leader or a facilitator; therefore, create a team that is well balanced and can play off each other’s strengths are weaknesses.
5) Your financials did not answer the bank’s risk concerns. Banks review two kinds of financials: current and projected. The current financials prove to the bank that you are currently making a profit. Future projections show the bank how you plan to use the loan and your ability to make monthly payments.

Often times when companies start to write their business plan, their first instinct is to search for a business plan template or sample and simply fill in the blanks. Though this may be a good starting point, it’s easy for entrepreneurs to miss necessary selling points. Don’t rely on business plan templates alone. Avoid making these mistakes and to ensure that your business has a “bankable” business plan, consult a business plan writing specialist who can help you write a business plan proposal that suits your needs, the needs of your company, and the needs of the bank.

Cheree Warrick is a business plan expert who helps minority owned companies throughout the mid-Atlantic (Virginia, Maryland, Washington D.C., Pennsylvania, New York, New Jersey, and Delaware) obtain bank loans for their growing small businesses. Whether an entrepreneur needs a working capital loan, commercial loan, equipment loan, or SBA guaranteed loan, Cheree is able to assist.