Eugene decided to leave for the village and create a farm for breeding rabbits. Registered LLC "Rabbit hole" with an authorized capital of $ 1000, drew up a business plan and applied for a loan from the bank. But there he was refused, and after him in the second and third banks. We figure out why entrepreneurs are not always able to borrow money and how to increase their chances of getting a loan.
Banks run the risk of losing money if the client does not repay the debt. Therefore, they carefully screen borrowers. Each bank has its own criteria for assessing the reliability and solvency of loan applicants, and if you were refused in one place, this does not mean that you will receive the same answer in other banks.
But it's important to avoid the mistakes that most often lead to rejection.
1. An unconvincing business plan
It is for this reason that three banks refused to John. His business plan did not include a detailed calculation of how he intends to bring the Rabbit Hole to self-sufficiency in order to pay off the debt.
In addition, he asked for too much. The banks said it was more than the investment needed for his farm startup. And it was not clear where the aspiring entrepreneur would direct the remaining loan.
Advice. Offer the bank detailed and realistic calculations. It is important that the business plan clearly states what the borrowed money will be spent on and from what resources the entrepreneur is going to return it. Otherwise, the bank is unlikely to risk giving him a loan. For more information on how to correctly draw up a business plan, read the article "How to start your own business: a business plan".
2. The loan is not secured by anything
The company "With us is warm", which sells heating equipment, decided to take out a loan to open several new stores. But this is a seasonal business: in the cold season, the financial situation improves, and in the summer there are almost no sales and revenue drops sharply.
The bank did not risk it: payments on the loan must be made regularly and it is not a fact that the company will cope with payments in the summer months.
Advice . Every bank wants to be sure that it will get its money back anyway. Therefore, it is worth offering him security for a loan - a pledge of property, a guarantee or surety.
For example, you can take advantage of the support of members of the National Guarantee System. For more information about where and how to seek help, see the article "How to get a loan for a small business under the state guarantee".
3. Too high credit load
John Smith, an individual entrepreneur, decided to grow seeds and sell them in multi-colored packages. He first applied to a bank for a business loan. But nothing came of it. It turned out that John Smith is already giving away most of his income for payments on consumer and car loans. And the risks are high that he will not cope with the repayment of the new debt.
Advice. Even if you are applying for a loan as an individual entrepreneur, the bank will take into account your personal credit history. Therefore, do not accumulate too many debts and try to pay them off on time. The bank even takes credit card debts into account.
If your business already has loans and you are looking for a new one, be sure to calculate what percentage of the profit your company spends on payments. If the debt load exceeds 50%, most likely, the bank will refuse to lend you money. Indeed, in this case, there is a high risk that with the slightest problems with sales, the company will not cope with payments.
But do not despair, the debt burden can be reduced, and bad credit history can be gradually improved.
4. Financial reporting inconsistencies
The car repair company "New hood without worries" applied to the bank for a loan to replenish working capital. In confirmation of her solvency, she provided accounting documents for her income and expenses.
The bank rechecked the data with the Federal Tax Service (FTS). It turned out that the numbers in the bank statement do not match the income from which the company pays taxes. The bank did not begin to figure out who the company was trying to deceive - him or the tax one - it simply did not give out money.
Advice. To ensure that the financial statements do not raise questions from the bank, it is necessary to declare all income. Refusal of a loan is not the most unpleasant consequence of inconsistencies between official and real income. Worse if the Federal Tax Service is interested in this. Failure to pay taxes threatens with blocking of accounts and other unpleasant consequences, up to criminal cases.
5. Debts under enforcement orders and other obligations
The network of beauty salons "Elena Beautiful" wanted to refinance its loans at a lower interest rate. But the bank found out that the company also has other debts. Elena Beautiful sued her supplier and lost. However, she did not comply with the court ruling and did not pay the money under the writ of execution.
Delayed loans and outstanding debts turned out to be the owners of the network. Such a company did not inspire confidence in the bank, and he refused to give her money.
The former banks refused to restructure the loans of Elena Beautiful for the same reasons: they were not sure that the company would be able to adhere to the payment schedule in a disciplined manner.
Advice. Pay accurately not only on loans and borrowings, but also on other accounts. Please note that the bank may request the credit history not only of the company itself, but also of its owners and managers.
Before contacting the bank, check if there are any debts for enforcement proceedings - this can be done on the website of the Federal Bailiff Service.
How to increase the chances of getting a loan?
Each bank has its own system for assessing potential borrowers, in which it takes into account many factors. But entrepreneurs have several ways to improve their rating in the eyes of the bank and try to minimize the risk of rejection.
Carefully study the terms of the loan. Banks often immediately indicate who the loan program is aimed at, what conditions must be met in order for the application to be approved. If your business does not meet these requirements, then there is no need to waste time and nerves - you will automatically be rejected.
For example, not all banks work with startups; they issue loans only to companies that have already reached self-sufficiency. Where to get funding for aspiring entrepreneurs, you can read in the text " Business life cycle: 5 stages of development".
It is especially important to find out everything in advance if you are applying for preferential loans under state programs. In most cases, they are designed for entrepreneurs engaged in certain types of activities. In addition, borrowers must be included in the register of SMEs.
For more information about various programs to support entrepreneurs, see the article "How to get a preferential loan for small businesses".
Keep track of your reputation and your business. When a bank decides whether to grant you a loan, it can take into account any factors, including your reputation. If you work with questionable contractors, fly-by-night firms, or your company conducts financial transactions according to intricate schemes, most likely, the lender will be wary and refuse you.
Run your business without big interruptions. Lenders are guided by the annual accounts of the borrower when they analyze his solvency. Therefore, some banks refuse to enterprises that have not worked for several months.
Consider the risks. The state of the business depends on many factors: new strong competitors may appear, rental rates may rise, or the cost of imported components. Banks welcome when a company thinks through its actions in advance in case of negative developments and prescribes in a business plan how it will keep profit.
For example, during a pandemic, it will be useful to submit an anti-crisis development plan to the bank. It can calculate how various restrictive measures will affect the enterprise, what prospects the business has and how borrowed money will help it overcome difficulties and increase income.
Improve your business literacy. Government organizations, business associations, and banks themselves often conduct training events for small and medium-sized businesses, including free ones.
Many of them may be useful to you. With their help, you will learn more about banking services for business, different ways to attract financing, changes in legislation, benefits for small businesses.
Banks run the risk of losing money if the client does not repay the debt. Therefore, they carefully screen borrowers. Each bank has its own criteria for assessing the reliability and solvency of loan applicants, and if you were refused in one place, this does not mean that you will receive the same answer in other banks.
But it's important to avoid the mistakes that most often lead to rejection.
1. An unconvincing business plan
It is for this reason that three banks refused to John. His business plan did not include a detailed calculation of how he intends to bring the Rabbit Hole to self-sufficiency in order to pay off the debt.
In addition, he asked for too much. The banks said it was more than the investment needed for his farm startup. And it was not clear where the aspiring entrepreneur would direct the remaining loan.
Advice. Offer the bank detailed and realistic calculations. It is important that the business plan clearly states what the borrowed money will be spent on and from what resources the entrepreneur is going to return it. Otherwise, the bank is unlikely to risk giving him a loan. For more information on how to correctly draw up a business plan, read the article "How to start your own business: a business plan".
2. The loan is not secured by anything
The company "With us is warm", which sells heating equipment, decided to take out a loan to open several new stores. But this is a seasonal business: in the cold season, the financial situation improves, and in the summer there are almost no sales and revenue drops sharply.
The bank did not risk it: payments on the loan must be made regularly and it is not a fact that the company will cope with payments in the summer months.
Advice . Every bank wants to be sure that it will get its money back anyway. Therefore, it is worth offering him security for a loan - a pledge of property, a guarantee or surety.
For example, you can take advantage of the support of members of the National Guarantee System. For more information about where and how to seek help, see the article "How to get a loan for a small business under the state guarantee".
3. Too high credit load
John Smith, an individual entrepreneur, decided to grow seeds and sell them in multi-colored packages. He first applied to a bank for a business loan. But nothing came of it. It turned out that John Smith is already giving away most of his income for payments on consumer and car loans. And the risks are high that he will not cope with the repayment of the new debt.
Advice. Even if you are applying for a loan as an individual entrepreneur, the bank will take into account your personal credit history. Therefore, do not accumulate too many debts and try to pay them off on time. The bank even takes credit card debts into account.
If your business already has loans and you are looking for a new one, be sure to calculate what percentage of the profit your company spends on payments. If the debt load exceeds 50%, most likely, the bank will refuse to lend you money. Indeed, in this case, there is a high risk that with the slightest problems with sales, the company will not cope with payments.
But do not despair, the debt burden can be reduced, and bad credit history can be gradually improved.
4. Financial reporting inconsistencies
The car repair company "New hood without worries" applied to the bank for a loan to replenish working capital. In confirmation of her solvency, she provided accounting documents for her income and expenses.
The bank rechecked the data with the Federal Tax Service (FTS). It turned out that the numbers in the bank statement do not match the income from which the company pays taxes. The bank did not begin to figure out who the company was trying to deceive - him or the tax one - it simply did not give out money.
Advice. To ensure that the financial statements do not raise questions from the bank, it is necessary to declare all income. Refusal of a loan is not the most unpleasant consequence of inconsistencies between official and real income. Worse if the Federal Tax Service is interested in this. Failure to pay taxes threatens with blocking of accounts and other unpleasant consequences, up to criminal cases.
5. Debts under enforcement orders and other obligations
The network of beauty salons "Elena Beautiful" wanted to refinance its loans at a lower interest rate. But the bank found out that the company also has other debts. Elena Beautiful sued her supplier and lost. However, she did not comply with the court ruling and did not pay the money under the writ of execution.
Delayed loans and outstanding debts turned out to be the owners of the network. Such a company did not inspire confidence in the bank, and he refused to give her money.
The former banks refused to restructure the loans of Elena Beautiful for the same reasons: they were not sure that the company would be able to adhere to the payment schedule in a disciplined manner.
Advice. Pay accurately not only on loans and borrowings, but also on other accounts. Please note that the bank may request the credit history not only of the company itself, but also of its owners and managers.
Before contacting the bank, check if there are any debts for enforcement proceedings - this can be done on the website of the Federal Bailiff Service.
How to increase the chances of getting a loan?
Each bank has its own system for assessing potential borrowers, in which it takes into account many factors. But entrepreneurs have several ways to improve their rating in the eyes of the bank and try to minimize the risk of rejection.
Carefully study the terms of the loan. Banks often immediately indicate who the loan program is aimed at, what conditions must be met in order for the application to be approved. If your business does not meet these requirements, then there is no need to waste time and nerves - you will automatically be rejected.
For example, not all banks work with startups; they issue loans only to companies that have already reached self-sufficiency. Where to get funding for aspiring entrepreneurs, you can read in the text " Business life cycle: 5 stages of development".
It is especially important to find out everything in advance if you are applying for preferential loans under state programs. In most cases, they are designed for entrepreneurs engaged in certain types of activities. In addition, borrowers must be included in the register of SMEs.
For more information about various programs to support entrepreneurs, see the article "How to get a preferential loan for small businesses".
Keep track of your reputation and your business. When a bank decides whether to grant you a loan, it can take into account any factors, including your reputation. If you work with questionable contractors, fly-by-night firms, or your company conducts financial transactions according to intricate schemes, most likely, the lender will be wary and refuse you.
Run your business without big interruptions. Lenders are guided by the annual accounts of the borrower when they analyze his solvency. Therefore, some banks refuse to enterprises that have not worked for several months.
Consider the risks. The state of the business depends on many factors: new strong competitors may appear, rental rates may rise, or the cost of imported components. Banks welcome when a company thinks through its actions in advance in case of negative developments and prescribes in a business plan how it will keep profit.
For example, during a pandemic, it will be useful to submit an anti-crisis development plan to the bank. It can calculate how various restrictive measures will affect the enterprise, what prospects the business has and how borrowed money will help it overcome difficulties and increase income.
Improve your business literacy. Government organizations, business associations, and banks themselves often conduct training events for small and medium-sized businesses, including free ones.
Many of them may be useful to you. With their help, you will learn more about banking services for business, different ways to attract financing, changes in legislation, benefits for small businesses.
