HOW TO REDUCE LOAN DENIALS WHEN APPLYING FOR BUSINESS CREDIT
Loan Killer #1 #1 :
Your Business Seems Risky by name or by industry
Name of Industry
Putting the name of their industry in their business’s name is a common mistake.
High-risk
To get licensed, lenders and credit issuers have a hidden set of conditions that you must follow.
High Risk NAIC Codes
Google, “High Risk NAIC Codes,” or “High Risk SIC Codes” to find out the high-risk industries that repel business credit. Avoid placing those industry keywords in your business name.
Building Business Credit
A broad and sweeping business name works well for building business credit.
Restricted Industries
Some restricted industries include oil trading, finance companies, and pawnshops, ammunition or weapons manufacturing, bail bonds, check cashing industries, political campaigns, and entertainment industries.
High-risk Industry
While leaving a high-risk industry out of your business name does not guarantee success, it will get your business past an initial red flag for bank loan denials.
Loan Deal Killer #2 #2 :
Records Consistency
company's website online
One of the most common reasons for loan and credit card application denials is the lender's inability to find the company's website online.
business name and address
The business name and business address on your application must match what is listed with the Secretary of State, the company website, business licenses and all other source points. A hyphen and abbreviation can trigger a loan denial.
Lenders interpret
Lenders interpret inconsistencies as a possible threat of theft.
consistency
Lenders check your company's public and other records to verify consistency with all documents, including corporate reports, certificates, utility bills, bank accounts, and web listings.
DBA filings
A business name should contain all recorded DBA filings in use.
Loan Deal Killer #3 #3 :
Issues with Your EIN, SIC and NAICS Codes, Corporate Entity, and Licenses
- To obtain funding for your company, you must first establish a legal entity (corporation or LLC).
- In most cases, filing a corporation or forming a limited liability company (LLC) gives you more corporate integrity and limits your liability.
- Don’t file a sole proprietorship.
- Verify that your entity is licensed in the same state as your business address to escape needless red flags from lenders.
- Your company must have a Federal Tax ID number, also known as an Employer Identification Number (EIN).
- Your EIN is needed to open a bank account and create a business credit profile.
- Verify that your company is identified with the same EIN by all state offices, banks, and trade credit vendors.
- The IRS website also allows you to use SIC and NAICS codes.
- Industries are categorized by SIC codes (Standard Industrial Classification) and NAICS codes (North American Industry Classification System).
- Be honest when choosing these codes for your business.
- If your business handles several lines of products or services, choose the least risky of the group for the NAIC or SIC code(s).
- Make sure you have the proper business licensing for your corporation.
- Contact State, County, and City Government offices to check if there are any required licenses and permits to operate your specific business.
- If your business needs a business license, a permit or a professional license to operate, not obtaining it will lead to denials from lenders.
Loan Deal Killer #4 #4 :
Business Address Issues
physical address
Your company's address must be a physical address of a brick-and-mortar building.
home address
Your business address cannot be a home address, a post office box, or a UPS mailing address.
finance your company
Until this condition is met, some lenders may refuse to accept and finance your company.
US Postal Service
Lenders search with the US Postal Service and blogs like Google Maps to see if you are using a home address.
virtual address
If you are, you will almost certainly be declined right away. Use a virtual address to avoid this problem.
Loan Deal Killer #5 #5 :
Lack of Attention to Business Phone Numbers and 411 Listings
toll-free number
Lenders consider an 800 or toll-free number to be a representation of a company's reputation.
home-based business owner
Particularly if you are a home-based business owner, a toll-free number gives the appearance that you are a larger organization.
virtual phone number
Setting up a virtual phone number or toll-free 800 number is extremely convenient and inexpensive.
company listed with 411
Many credit issuers and lenders will not accept you until the company is listed with 411.
Restricted Industries
Some restricted industries include oil trading, finance companies, and pawnshops, ammunition or weapons manufacturing, bail bonds, check cashing industries, political campaigns, and entertainment industries.
ListYourself.net
If you don't have a record, use ListYourself.net to get one.
Loan Deal Killer #6 #6 :
Non-Professional Website and Email
business website
Lenders will research your corporation on the internet, and it is best if they verified everything directly from your business website.
securing a loan
The lack of a business website will significantly jeopardize any hopes of securing a loan.
Upwork.com
Use websites such as Upwork.com to get a website built quickly and cheaply. If appropriate, your website domain should be a company name. Keep in mind the high-risk NAIC and SIC codes we spoke about earlier.
Loan Deal Killer #7 #7 :
Business Bank Account Carelessness
- When first opening the bank account, always keep the next step in mind, such as building business credit.
- The older your company's banking history, the greater its borrowing capacity.
- Lenders deem the incorporation date and the continuous time in good standing as a critical measure that the company is valid. Lenders avoid companies that are dissolved or recently reinstated.
- Lenders prefer you open a bank account in their bank. When you obtain financing, expect to open another bank account.
- Some lenders value the incorporation date. If the amount of the loan is over $100,000, other lenders look at the day the business first opened a bank account.
- Your bank rates your business on your balances. Higher-rated businesses are more likely to get loans.
- When applying for bank loans, you should maintain a $10,000 average in your business bank account for a least three months to obtain a Low-5 rating.
- This way, most conventional banks view your corporation as a good underwriting risk.
- If you do not have a low-5 rating, you can get business credit and alternative loans, but you will not be able to get a conventional loan.
Loan Deal Killer #8 #8 :
Not Getting Your Personal Financial House in Order
business loan
You must have a strong personal, business, and bank credit to qualify for a business loan from a traditional bank.
personal credit score
A strong personal credit score will help your company get started faster.
personal credit ratings
Payment history, use, credit mix, and duration of credit history all relate to personal credit ratings.
pay bills on time
As a result, it is important for you as an entrepreneur to pay your bills on time, avoid maxing out credit cards, hold more than one form of credit card, and avoid closing old accounts or continually searching for new cards.
Loan Deal Killer #9 #9 :
No Business Credit
- A company’s business credit is a test of its ability to pay its bills.
- If you do not develop credit for your company, your scores will be poor or nonexistent, destroying your chances of obtaining a bank loan.
- To begin creating business credit, register with Business Experian and Business Equifax.
- Business Experian will assign a Business Identification Number (BIN).
- They will share your information with the Small Business Financial Exchange (SBFE).
- The SBFE will share your business information with D&B.
- D&B will issue a DUNS.
- A PAYDEX score is calculated using your DUNS number and at least three purchase impressions.
Loan Deal Killer #10 #10 :
Poor Business Credit
ID numbers
It is not enough to simply obtain your business credit agency ID numbers. You must also actively create business credit.
vendor credit
Focus on building vendor credit first.
best financing
Pay the taxes on time to access the best financing.
PAYDEX score
This would result in a PAYDEX score of 80, and Equifax Credit Risk Score of 90 or higher, and a decent FICO SBSS score.
payment efficiency
The payment efficiency of your organization is more important than anything else.
consistency
Check the consistency and completeness.