When a new business client comes to me for a loan, it’s often too late for any lender to help them. The frustrating part is that these issues are easy to fix if addressed early. I’ll explain why these factors are crucial and how to address them. It’s extremely disheartening for business owners who diligently pay their bills on time to get declined, while others who pay late get approved. Here are the top five reasons why business owners who always pay their bills on time still get declined:

Number Five: Not having a website or having a website that’s only a few months old.
A professional online presence is more important than ever. Your website is a reflection of your business’s credibility and longevity.

Number Four: Not understanding how business and personal credit reports differ.
Business credit and personal credit are evaluated differently. Knowing the distinctions can make or break your loan application.

Number Three: Depleted or nearly depleted cash reserves.
Cash flow is king. Lenders want to see that you have a cushion to cover unexpected expenses and stay afloat during tough times.

Number Two: No established business credit history.
Building a solid business credit history from the start is essential. Lenders need to see a track record of responsible credit use specific to your business.

Number One: Financing your business with personal credit cards to take advantage of zero percent rates or available credit lines.
This common strategy can backfire, damaging your personal credit score and making your business look unstable to lenders.

Stay tuned to learn more about each of these points and how to fix them or just scroll down a bit. Don’t let these preventable mistakes stand in the way of your business’s success

Now, let me explain why each of these points is crucial and how you can address them to improve your chances of getting a business loan.

Number Five: Not having a website, an incorporated business, and a business bank account will all harm you.

 Let’s start with the website. Lenders lack imagination; if you don’t have a website, they can’t envision how you conduct business. They have numerous tools to verify your credibility and can easily detect when your website was created. Lenders often request business bank statements to confirm revenue. If you show them personal bank statements, they won’t bother deciphering what’s personal and what’s business—leading to a quick decline. Additionally, not setting up an LLC or corporation shows a lack of seriousness and knowledge about protecting your business and keeping finances separate. These steps are essential even if you never need a business loan. 

Solution: Immediately start an LLC or corporation, open a business bank account and put up a website, even if it isn’t perfect.

Number Four: Misunderstanding the Differences Between Personal and Business Credit Reports.

Most business owners think personal and business credit reports work the same way. They don’t. Beyond different credit inquiry impacts and scoring scales, here are five common misconceptions:

  1. Payment Timing Matters More: On personal credit reports, payments are marked as on time or 30, 60, or more days late. Paying 20 days early or 29 days late is treated the same. For business credit, paying early boosts your score, and paying even a few days late can hurt it. Always pay early to improve your business credit score.
  2. Small Payments Often Don’t Count: Payments under $100 usually don’t show up on business credit reports. Aim for payments of $100 or more to build your credit history.
  3. Selective Reporting by Banks: Many banks report to only one of the three major business credit reporting agencies, unlike personal credit where most creditors report to all three bureaus.
  4. Business Credit Cards May Not Help: Many business credit cards don’t report to business credit agencies, so they might not build your business credit as you think.
  5. Anonymous Negative Marks: When you check your business credit report, negative marks don’t specify the creditor, just a category like “office supply store.” Correcting these can be time-consuming and challenging.

Solution: Find a trusted lender that is knowledgeable that can help guide you through the business credit process.

Number Three: Using All Cash Reserves to Run Your Business.

This might sound smart to save on interest costs, but it’s not. Most business owners who do this regret it because it stunts growth or forces closure due to lack of capital. Forbes states the top reason businesses fail is lack of capital. Business owners need to think like business owners, 

not consumers.

Lenders prefer businesses with capital reserves because it shows they’re responsible and prepared for bumps in the road. Without cash reserves and a business credit history, your business appears unattractive to lenders. While you might save on interest initially, you’ll lose much more in the long run. Moreover, in times when banks aren’t lending, having cash reserves can be a lifesaver.

Even successful businesses with plenty of cash borrow due to special tax write-offs like tax code 179, which can make borrowing more cost-effective.

 Solution: Secure business loans early, even at higher rates, to build a credit history for long-term success.

Number Two: No established business credit history.

Clients use credit cards, savings, and borrow from family and friends to start their businesses and think they are set.

Many businesses will eventually need a loan to grow. The primary deciding factor for most banks is business credit. Without it, lenders can’t gauge your reliability. An 800 FICO score helps, but not as much as a solid business credit history. I understand the reluctance to take on business loans without credit history, but consider this: would you rather pay a high interest rate on a risky $5,000 loan or a high rate on a $500,000 loan, or worse yet, not qualify at all? Penny-pinching isn’t always wise. Growing businesses often outgrow personal loans, and relying too heavily on them can tank your personal credit score.

 Solution: Secure business loans early, even at higher rates, to build a credit history for long-term success.

Number One: Using Personal Credit Cards to Finance Your Business.

This might seem genius with 0% interest offers, but it’s often disastrous. Most businesses don’t pay off these loans in the zero-interest period, leading to rates as high as 29% and hefty cash advance fees. Maxing out personal credit cards can drop your credit score by over 100 points.

Early-stage lenders look at personal credit, so maxed-out cards hurt you three ways: a lower FICO score, increased credit utilization, and missed opportunities to build business credit. Solution: Use business credit lines instead of personal credit cards.

 Solution: Secure business loans early, even at higher rates, to build a credit history for long-term success.

Additional Common Mistakes:

Businesses can also be declined for having less than a seven-year credit history and fewer than seven credit lines on their personal credit report. CG Loan can help those who fall short, but the best course is to set your business up for success from the start.

Solution: Make sure you have plenty of personal credit history on your credit report. Hint: student loans and authorized user accounts do not count towards this goal. 

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Business owners often lack the time to navigate complex credit applications and gather numerous financial documents. With CG Loan, this process is simplified through a straightforward credit application that typically doesn’t require extensive financial documentation. CG Loan can provide finance approvals in as little as 15 minutes.

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You can rest assured that fluctuations in interest rates won’t impact your payments with us. Your payment remains as low as the day you sign, ensuring stability and peace of mind.

Funding When You Need It

Banks are often known for lending money to businesses only when they are financially stable. However, CG Loan breaks this pattern by offering equipment financing precisely when your business needs it most. Whether you are a startup or experiencing rapid growth, CG Loan is there to support you every step of the way.