I would like to start a discussion on why banks turn down loan requests. Most
of the time – probably 9.9 times out of 10 – when a loan request is
turned down, they state it has to do with credit issues. This makes it easy
for them and it pushes the blame away from them. But, there are people with
good credit histories (high credit scores) that are still tuned down. Thus,
lets discuss why they say you were turned down, why you think you were turned
down and what we (you) might be able to do about it. The main idea here is to
find ways to overcome the obstacles that are holding you back from getting
bank loans and even SBA loans that go through banks.
I just gone through a lengthy process of applying for a working capital loan
as I have signed recent agreements with 2 Fortune 50 retailers (initials HD
and L). Each require me to meet minimum inventory requirements which is why I
am seeking this loan. My business is 3+ years old and is cash flow positive -
I have used all of my earnings to build inventory to date. I collateralized
my loan with my home equity (2x loan amount), my wife's income (0.9X loan
amount), my business income (0.4X loan amount) as well as my current
inventory (0.6X loan amount). OK so with this math I have put up 4X in assets
to secure this loan and SBA refused or declined?
I spent many hours working with a number of banks as well as a loan packager
who tightened the whole thing up. Bank approved. SBA declined and when asked
why - the response was that I had a personal bankruptcy (which I disclosed)
11 years prior. I am a US navy veteran and with what I have put up as
collateral and the rebuilding of my credit since the BK 11 years ago is
nothing short of impeccable. Someone please help me understand what more I
can do short of erasing an 11 year old bankruptcy?
JGabriel | Community Moderator |
4/29/2013 - 11:29 am
Show Replied Text…
I just gone through a lengthy process of applying for a working capital loan as I have signed recent agreements with 2 Fortune 50 retailers (initials HD and L). Each require me to meet minimum inventory requirements which is why I am seeking this loan. My business is 3+ years old and is cash flow positive - I have used all of my earnings to build inventory to date. I collateralized my loan with my home equity (2x loan amount), my wife's income (0.9X loan amount), my business income (0.4X loan amount) as well as my current inventory (0.6X loan amount). OK so with this math I have put up 4X in assets to secure this loan and SBA refused or declined?
I spent many hours working with a number of banks as well as a loan packager who tightened the whole thing up. Bank approved. SBA declined and when asked why - the response was that I had a personal bankruptcy (which I disclosed) 11 years prior. I am a US navy veteran and with what I have put up as collateral and the rebuilding of my credit since the BK 11 years ago is nothing short of impeccable. Someone please help me understand what more I can do short of erasing an 11 year old bankruptcy?
Try getting in touch with a local Small Business Development Center or SCORE, two of SBA's resource partners. They're located across the country and provide free business counseling and answers. Visit our local assistance guide to find your local SBA resource partners by entering your zip code.
I see where you are coming from, but I have to disagree. I do not know where
it started, but there is a prevalent myth out there that banks do not want to
do loans. There is another similar misconception regarding banks not wanting
to do small business loans. I can tell you from personal experience that this
is not the case. All four banks that I have worked for love small business
borrowers. In fact, my current employer books dozens of small business loans
every month.
You said that you wanted a discussion about why banks turn down borrower
requests. I think that if we are going to have a discussion we need to start
from facts. For example, banks do not decline 99% of the loan requests. If
they did, I would be out of a job and most banks would have gone broke.
Credit issues are not limited to the personal credit of the business owner.
While the personal credit is a very important factor specially in small
business requests, there are many other issues that can be described as
credit issues.
- A marginal or inadequate source of repayment is a credit issue.
- Lack of appropriate collateral is a credit issue.
- No experience in the business is a credit issue.
To the original poster:
I see where you are coming from, but I have to disagree. I do not know where it started, but there is a prevalent myth out there that banks do not want to do loans. There is another similar misconception regarding banks not wanting to do small business loans. I can tell you from personal experience that this is not the case. All four banks that I have worked for love small business borrowers. In fact, my current employer books dozens of small business loans every month.
You said that you wanted a discussion about why banks turn down borrower requests. I think that if we are going to have a discussion we need to start from facts. For example, banks do not decline 99% of the loan requests. If they did, I would be out of a job and most banks would have gone broke. Credit issues are not limited to the personal credit of the business owner. While the personal credit is a very important factor specially in small business requests, there are many other issues that can be described as credit issues.
- A marginal or inadequate source of repayment is a credit issue.
- Lack of appropriate collateral is a credit issue.
- No experience in the business is a credit issue.
- Little or no capital is a credit issue.
Please see my related post. In my opinion I meet all of your bullets and yet
the SBA (not the lender) still declined the application. Any advice from the
banker's perspective is appreciated. Thanks
I worked at a very large Bank for 10 years, 5 years at the branch. My
turndown rate for small business loans was so high, you would be, well,
extremely surprised. The customer had to have very good credit, and also
strong collateral and strong financials. There were also certain industries
that were considered not "quite as much desired". There normally were several
turndown reasons, the last 2 or so were usually very weak reasons. If the
customer corrected one problem, it allowed the bank to review the customer
again without putting the institution in the position of being forced to do
the loan.
Understand, when you go to a bank, or anywhere & you are told they "can" do
the loan, all this really means is they have the capability to do the loan,
if they choose to do (such a)loan. Whether they will do so in your case may
very well be a completely different question.
How to maximize your chances?
Make sure you are talk with an experienced loan officer right away. Have a
talk with them, try to talk off the record as much as possible. That means
tell them about your situation before you apply. Ask probing questions & dont
make them feel like you are going to hold them to every word they say. You
will find out a lot about what they look at and what the chances are you may
qualify & if not, how far away you are from doing so. You are trying to find
out where you really are beyond the "Yes sir we can do that speel"
Keep your credit score high
Do not ask for too much. Many applicants think since they are applying, they
should just ask for a lot. No. You may be declined for $50K but would have
been approved for $25K. Banks never were very good and making counter offers
to an initial request. If you asked for $100K, they usually would say no or
yes to that specific amount.
Make sure your financials show flat or increasing Gross Income and flat or
increasing Net income. If your Accountant is doing a great job making your
financials look like your business makes not money, you will be dead in the
water.
I worked at a very large Bank for 10 years, 5 years at the branch. My turndown rate for small business loans was so high, you would be, well, extremely surprised. The customer had to have very good credit, and also strong collateral and strong financials. There were also certain industries that were considered not "quite as much desired". There normally were several turndown reasons, the last 2 or so were usually very weak reasons. If the customer corrected one problem, it allowed the bank to review the customer again without putting the institution in the position of being forced to do the loan.
Understand, when you go to a bank, or anywhere & you are told they "can" do the loan, all this really means is they have the capability to do the loan, if they choose to do (such a)loan. Whether they will do so in your case may very well be a completely different question.
How to maximize your chances?
Make sure you are talk with an experienced loan officer right away. Have a talk with them, try to talk off the record as much as possible. That means tell them about your situation before you apply. Ask probing questions & dont make them feel like you are going to hold them to every word they say. You will find out a lot about what they look at and what the chances are you may qualify & if not, how far away you are from doing so. You are trying to find out where you really are beyond the "Yes sir we can do that speel"
Keep your credit score high
Do not ask for too much. Many applicants think since they are applying, they should just ask for a lot. No. You may be declined for $50K but would have been approved for $25K. Banks never were very good and making counter offers to an initial request. If you asked for $100K, they usually would say no or yes to that specific amount.
Make sure your financials show flat or increasing Gross Income and flat or increasing Net income. If your Accountant is doing a great job making your financials look like your business makes not money, you will be dead in the water.
Please see my related post. Despite my collateral and income (and big box
intangible contracts) the bank got behind me and yet the SBA (not the lender)
still declined the application. Any advice from the
banker's perspective is appreciated. I did find that for this amll loan
(Under $200K that the big babnks wanted nothing to do with me. Thanks
luxejoe | Window Shopper | 4/25/2013 - 3:24 pm
luxejoe | Window Shopper | 4/25/2013 - 3:33 pm
as I have signed recent agreements with 2 Fortune 50 retailers (initials HD
and L). Each require me to meet minimum inventory requirements which is why I
am seeking this loan. My business is 3+ years old and is cash flow positive -
I have used all of my earnings to build inventory to date. I collateralized
my loan with my home equity (2x loan amount), my wife's income (0.9X loan
amount), my business income (0.4X loan amount) as well as my current
inventory (0.6X loan amount). OK so with this math I have put up 4X in assets
to secure this loan and SBA refused or declined?
I spent many hours working with a number of banks as well as a loan packager
who tightened the whole thing up. Bank approved. SBA declined and when asked
why - the response was that I had a personal bankruptcy (which I disclosed)
11 years prior. I am a US navy veteran and with what I have put up as
collateral and the rebuilding of my credit since the BK 11 years ago is
nothing short of impeccable. Someone please help me understand what more I
can do short of erasing an 11 year old bankruptcy?
JGabriel | Community Moderator | 4/29/2013 - 11:29 am
loanuniverse | Window Shopper | 9/15/2012 - 11:11 pm
I see where you are coming from, but I have to disagree. I do not know where
it started, but there is a prevalent myth out there that banks do not want to
do loans. There is another similar misconception regarding banks not wanting
to do small business loans. I can tell you from personal experience that this
is not the case. All four banks that I have worked for love small business
borrowers. In fact, my current employer books dozens of small business loans
every month.
You said that you wanted a discussion about why banks turn down borrower
requests. I think that if we are going to have a discussion we need to start
from facts. For example, banks do not decline 99% of the loan requests. If
they did, I would be out of a job and most banks would have gone broke.
Credit issues are not limited to the personal credit of the business owner.
While the personal credit is a very important factor specially in small
business requests, there are many other issues that can be described as
credit issues.
- A marginal or inadequate source of repayment is a credit issue.
- Lack of appropriate collateral is a credit issue.
- No experience in the business is a credit issue.
- Little or no capital is a credit issue.
luxejoe | Window Shopper | 4/25/2013 - 3:30 pm
the SBA (not the lender) still declined the application. Any advice from the
banker's perspective is appreciated. Thanks
wsan12 | Performer | 9/15/2012 - 5:22 pm
turndown rate for small business loans was so high, you would be, well,
extremely surprised. The customer had to have very good credit, and also
strong collateral and strong financials. There were also certain industries
that were considered not "quite as much desired". There normally were several
turndown reasons, the last 2 or so were usually very weak reasons. If the
customer corrected one problem, it allowed the bank to review the customer
again without putting the institution in the position of being forced to do
the loan.
Understand, when you go to a bank, or anywhere & you are told they "can" do
the loan, all this really means is they have the capability to do the loan,
if they choose to do (such a)loan. Whether they will do so in your case may
very well be a completely different question.
How to maximize your chances?
Make sure you are talk with an experienced loan officer right away. Have a
talk with them, try to talk off the record as much as possible. That means
tell them about your situation before you apply. Ask probing questions & dont
make them feel like you are going to hold them to every word they say. You
will find out a lot about what they look at and what the chances are you may
qualify & if not, how far away you are from doing so. You are trying to find
out where you really are beyond the "Yes sir we can do that speel"
Keep your credit score high
Do not ask for too much. Many applicants think since they are applying, they
should just ask for a lot. No. You may be declined for $50K but would have
been approved for $25K. Banks never were very good and making counter offers
to an initial request. If you asked for $100K, they usually would say no or
yes to that specific amount.
Make sure your financials show flat or increasing Gross Income and flat or
increasing Net income. If your Accountant is doing a great job making your
financials look like your business makes not money, you will be dead in the
water.
luxejoe | Window Shopper | 4/25/2013 - 3:36 pm
intangible contracts) the bank got behind me and yet the SBA (not the lender)
still declined the application. Any advice from the
banker's perspective is appreciated. I did find that for this amll loan
(Under $200K that the big babnks wanted nothing to do with me. Thanks
kmurray | Community Moderator | 9/14/2012 - 10:17 am
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