Understanding the complexities behind loan eligibility

Reasons For a Small Business Loan Rejection

Lenders are constantly receiving applications for funding from businesses of all sizes, but with only so much capital to distribute, some of these requests must necessarily be denied. It’s important to understand that the reasons behind these rejections can vary widely, depending on individual circumstances.

And yet, Forbes’ Mary Ellen Biery recently profiled the main reason given for such a rejection, drawing from information derived by researchers at Pepperdine University. It’s important to make that clear, because small business owners need to know what they need to focus on to establish their creditworthiness. In the case of this research, the big deciding factor appears to have been the earnings an applicant makes.

But it’s not enough for them to simply be in good financial standing: the business must be able to prove that their money is coming steadily from their trade. Biery quotes Pepperdine’s Craig Everett on this important distinction and the difference it makes for the business owner seeking a loan.

“If earnings were higher this year but it’s because you had a big profit from a real estate deal and you’re a dry cleaner, that doesn’t count,” he said.

Of course, this might seem unfair to the companies applying for a loan in bad financial straits, but proper business rules should still apply. According to the Associated Press, Australia’s Qantas Airways has been denied a recent loan despite its willingness to slash some of its jobs.

In a situation where a firm needs help in following correct procedure, the use of an automated decisioning system might be an efficient supplement to their existing processes. This can help your business take in the whole picture about a candidate.

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