As banks raise their requirements on loans, business owners are left trying to figure out how they can get the working capital they desperately need to cover obligations, maintain day-to-day operations, and even roll out plans for growth. Bank loan turndowns have been on the rise, and they are not just experienced by businesses going through a rough financial patch. Loan turndowns impact individual businesses, but have a greater impact on our economy as a whole.
What Triggers Loan Turndowns?
When a business applies for a loan, the lender will compare their requirements with the applicant’s profile. The largest portion of any loan consideration is credit score. For a business loan, lenders prefer their applicants to have credit ratings above 770, and ideally above 800. Anything below that frequently undisclosed number throws up a red flag that the business may not be able to repay the capital they borrow. This will typically result in a turndown.
Cash flow and sales are also major factors when lenders review business loan applications. If sales are low or cash flow is strained with expenses overshadowing revenue, then that poses another big risk to lenders. Any one of these factors could trigger loan turndowns for businesses.
It is important to note that businesses with strong credit ratings and cash flow but less than stellar sales will also be declined for loans. Lenders are most interested in the borrower’s ability to repay a loan, and if their cash flow does not meet that demand for their respective industry, it will not be approved. Still, even after passing the basic requirements, business loan turndowns happen.
The Impact of Business Loan Turndowns
Loan turndowns have a widespread impact. Prohibitively high requirements from lenders can result in businesses not getting the financing they need to sustain operations or grow. For a new or small business, a loan turndown can prevent them from successfully weathering those crucial first years or keep them from getting a stable foothold in the marketplace.
On a macro level, bank turndowns lower competition and place downward pressure on innovation in every industry. Businesses need a viable working capital solution without suffering through bank turndowns or relying on debt-based financing.
Avoiding Loan Turndowns
Instead of jumping through hoops only to receive turndowns from lenders, businesses use accounts receivable factoring. Factoring is a fast, efficient, and transparent process where unpaid receivables are turned into cash. Factoring does not place debt on the books and it preserves credit ratings while also boosting cash flow. Factoring is an ideal solution for new, small, and even large businesses so they can build up working capital without needing to navigate the red tape of traditional lending channels.
New Century Finance is a leader in accounts receivable factoring services. If you need working capital for your business and want to avoid bank turndowns, contact our offices today. One of our experts will discuss your options and then provide a customized factoring solution that provides your business with the cash flow it needs to operate more smoothly.