Why banks will not grant your startup loans
With growing expenses to be sorted, it could be difficult to run a business with money from your own pocket or funds from family and friends. When such happens, one could resort to applying for loans from banks; the thing is, it is likely your application is turned down. Bad news, right? Knowing why most start-ups are not granted loans could prevent you from going that road without taking certain precautions.
Lack of substantial cash flow
Put yourself in the position of a money lender, would you lend someone money even when you know they are not capable of paying back? No? exactly my thought. The same applies to a banker. You will most likely not get a loan from a bank when it’s obvious you do not have a consistent cash flow. That begs the question of how you will be able to pay back within the stipulated period.
As a lender, a borrower capable of paying back will be the first on your list as you are sure to get your money back within a specific period of time. Banks also favour start-up that have a steady cash flow. Although, it doesn’t mean your start-up doesn’t have potentials to grow, they can’t just risk it.
Inadequate preparation
In order to get a desired result, one has to put in conscious effort into making adequate preparation. Certain things have to be put in place before applying for a loan such as the company’s financial records which include: bank statement, profit and loss statement, balance sheet. Getting these documents will be extremely easy for accounting software users.
A well written business plan is also an important document to present to bankers when applying for a loan. This will serve as the roadmap of where your business is and where you intend taking it. It is advised to research on any other document you will need and have them ready.
If you don’t want the bank declining your application, you should probably start making the necessary preparation now.
Time in business
Applying for a bank loan may not be the best option for you as a new business owner. Banks want a long record of stability and success, which you unfortunately don’t have. In this case, they are somewhat reluctant to loan you some money.
Lack of collateral
Ok… so, I’m a banker and I’m to approve a loan application of either Dangote Groups or a start-up, which do you think I’d accept? Dangote Groups of course. Why? Because they have assets worth 2x the worth of whatever loan they may have applied for. This is rather unfortunate, but that is the mind of a banker. They have to make decisions to suit their interest.
Declining industry
Does your business fall under a sector considered to be declining? If you’re your application will probably be declined. Granting you a loan in this scenario is not happening. What banks are concerned about when it comes to loans is that you repay every kobo; anything that will hinder that, they shy away from.
