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Banks Have a Lot of Reasons to Reject Your Small Business Loan

November 4th, 2020

For a small business to grow into a big business, it needs a loan unless it has exceptional sales and profit margins. A small business owner has quite a few places where he/she can go with a loan request. Banks seem to be one of their options on most occasions. What these owners might not realize is that banks have recently developed a reputation for rejecting small business loans. It seems that banks are more interested in financing large businesses due to their benefits. A bank can come up with a variety of reasons to reject loan approval for a small business. Some of the common reasons are as under:

Reasons for Banks to Reject Your Small Business Loan

Credit History

One of the barriers between you and the business loan is credit history. When you go to a bank, they look at your personal as well as business credit reports. Some people are under the impression that their personal credit does not affect their business loans. But that’s not always the case. A majority of banks look into both the types of credits. One of the aspects of credit that matter a lot to the banks is credit history. The length of your credit history can affect your loan approval negatively or positively.

The more information banks have at hand to assess your business’ creditworthiness, the easier it is for them to forward you the loan. However, if your business is new and your credit history is short, banks will be unwilling to forward you the desired loan.

Risky Business

You must be aware of the term high-risk business. In fact, lending institutions have created an entire industry for high-risk businesses to help them with loans, credit card payments, etc. A bank can look at a lot of factors to evaluate your business as a high-risk business. Perhaps you belong to an industry that is high-risk per se. Examples of such businesses are companies selling marijuana-based products, online gambling platforms, and casinos, dating services, blockchain-based services, etc. It is imperative to understand that your business’ activities can also make it a high-risk business.

For example, your business might not be a high-risk business per se, but perhaps you have received too many charge-backs on your shipped orders from your customers. In that case, the bank will see you as a risky investment and might eventually reject your loan application.

Cash Flow

As stated earlier, your credit history matters a lot when a bank is to approve your loan request. While having a short credit history increases your chances of rejection, a long credit history isn’t always a savior too. Any financial incidents on your credit history that do not favor your business can force the bank to reject your application. One of the most important considerations is the cash flow of your business. When you have cash flow issues, you are at risk of receiving a “no” from the bank for your loan.

Your cash flow is a measure for the bank to know how easily you return the loan. If you are tight on cash flow, how will you manage the repayments? However, cash flow is one of the controllable factors for you. Find ways to increase your revenues and lower your expenses. Once you have the right balance, you can approach the bank for a loan.

The Debt

A mistake that small business owners often make is trying out too many places for loans. They will avoid going to the bank first but get loans from several other sources in the meantime. Once you have obtained your business funding from other sources, it makes sense to return it in time. Approaching the bank when you already have a lot of debt to pay is not advisable at all. Do keep in mind that the debt you or your business owes affects your credit score as well. In short, the bank does not even have to investigate to know your debt. An overview of your credit report can tell the story.

The Preparation

Sometimes, your business is doing fine, and your credit score is in good shape as well. However, what’s missing is a solid business plan and proper preparation for loan approval. If you haven’t already figured out, banks require you to present a lot of documents with your loan approval request. Here are only some of the documents you will have to present to the bank to get approval for your loan.

Income tax returns
Existing loan documents
Personal financial documents
Affiliations and ownership
Business lease documents
Financial statements of the business

You have to be exceptionally careful when these documents and presenting them to the bank. Any discrepancies can result in loan rejection.

Concentration of Customers

This one might come as a surprise to some, but a lot of banks consider this aspect of your business seriously. You must not forget that loans are banks’ investments. Businesses that approach the banks are their vehicles to multiply their money in the form of interest. If the bank senses that your business does not have the potential to expand, it can reject your loan request. Think of a mom and pop shop in a small town with a small population. If it only serves the people of that town and has no potential to grow further, a rejection is imminent.

In this particular case, even if the business has considerable profit margins, it relies on its regular customers for that. The bank might see it as a returnable loan but not as an investment opportunity.

Conclusion

The good news is that you have a lot of funding options as a small business owner. Today, banks are only one of the many options for you to fund your bank. You don’t necessarily have to apply for loans when you have crowdfunding platforms actively helping small business with their funding needs. If you are seeking a business loan from a bank, that’s fine. However, if the bank does not approve your request, it should not worry you much.

Banks Have a Lot of Reasons to Reject Your Small Business Loan

October 27th, 2020

For a small business to grow into a big business, it needs a loan unless it has exceptional sales and profit margins. A small business owner has quite a few places where he/she can go with a loan request. Banks seem to be one of their options on most occasions. What these owners might not realize is that banks have recently developed a reputation for rejecting small business loans. It seems that banks are more interested in financing large businesses due to their benefits. A bank can come up with a variety of reasons to reject loan approval for a small business. Some of the common reasons are as under:

Reasons for Banks to Reject Your Small Business Loan

Credit History

One of the barriers between you and the business loan is credit history. When you go to a bank, they look at your personal as well as business credit reports. Some people are under the impression that their personal credit does not affect their business loans. But that’s not always the case. A majority of banks look into both the types of credits. One of the aspects of credit that matter a lot to the banks is credit history. The length of your credit history can affect your loan approval negatively or positively.

The more information banks have at hand to assess your business’ creditworthiness, the easier it is for them to forward you the loan. However, if your business is new and your credit history is short, banks will be unwilling to forward you the desired loan.

Risky Business

You must be aware of the term high-risk business. In fact, lending institutions have created an entire industry for high-risk businesses to help them with loans, credit card payments, etc. A bank can look at a lot of factors to evaluate your business as a high-risk business. Perhaps you belong to an industry that is high-risk per se. Examples of such businesses are companies selling marijuana-based products, online gambling platforms, and casinos, dating services, blockchain-based services, etc. It is imperative to understand that your business’ activities can also make it a high-risk business.

For example, your business might not be a high-risk business per se, but perhaps you have received too many charge-backs on your shipped orders from your customers. In that case, the bank will see you as a risky investment and might eventually reject your loan application.

Cash Flow

As stated earlier, your credit history matters a lot when a bank is to approve your loan request. While having a short credit history increases your chances of rejection, a long credit history isn’t always a savior too. Any financial incidents on your credit history that do not favor your business can force the bank to reject your application. One of the most important considerations is the cash flow of your business. When you have cash flow issues, you are at risk of receiving a “no” from the bank for your loan.

Your cash flow is a measure for the bank to know how easily you return the loan. If you are tight on cash flow, how will you manage the repayments? However, cash flow is one of the controllable factors for you. Find ways to increase your revenues and lower your expenses. Once you have the right balance, you can approach the bank for a loan.

The Debt

A mistake that small business owners often make is trying out too many places for loans. They will avoid going to the bank first but get loans from several other sources in the meantime. Once you have obtained your business funding from other sources, it makes sense to return it in time. Approaching the bank when you already have a lot of debt to pay is not advisable at all. Do keep in mind that the debt you or your business owes affects your credit score as well. In short, the bank does not even have to investigate to know your debt. An overview of your credit report can tell the story.

The Preparation

Sometimes, your business is doing fine, and your credit score is in good shape as well. However, what’s missing is a solid business plan and proper preparation for loan approval. If you haven’t already figured out, banks require you to present a lot of documents with your loan approval request. Here are only some of the documents you will have to present to the bank to get approval for your loan.

Income tax returns
Existing loan documents
Personal financial documents
Affiliations and ownership
Business lease documents
Financial statements of the business

You have to be exceptionally careful when these documents and presenting them to the bank. Any discrepancies can result in loan rejection.

Startup? Build a Business With Staying Power

October 16th, 2020

INTRODUCTION

Are you thinking about starting a business in 2019, but don’t know how or even where to begin? This article outlines the biggest obstacles to overcome, what you need to start your business, and what to do after year one!

THE MYTHS OF STARTING A BUSINESS

When thinking about starting a business you want to think about “Why are you starting the business?” Often times someone decides to start a business with the mindset they will have more free time, work at home, and have a flexible schedule. Unfortunately, it is important to avoid these myths. Majority of the time, starting a business isn’t any of these things. Instead, it is long hours, working at home may be a distraction, less flexibility, and there are many hats to juggle. It’s completely different then working for a company and it is important to keep all of this in mind when deciding if starting a business is right for you. If it is, then let’s dive into getting started with your business idea!

Attitude is EVERYTHING. You need to always keep a cheery attitude. Many things are going to happen during the lifecycle of the company, both good and bad, and the most important thing is to keep a positive attitude.

BIGGEST OBSTACLES TO OVERCOME

The two biggest obstacles startups face when starting a business is money and reputation. You need to make sure you are able to stay afloat and have a means of financing when starting out. And reputation is also an obstacle because you don’t have a reputation or customers. Unless you start out with a group of customers, most of the time you are starting out very alone.

WHAT YOU NEED?

VIABLE PRODUCT

You need to provide a product/service that people want to buy. Researching similar products/services is important to see what else is out there that is similar to your idea and then determine how your product will be better than the competition. It is also important to be able to bring experience to the table. It is the experience you have that will make the company. Typically, you want to have a niche so you can take a focused approach and decide what type of company you want it to be. Lastly, you need to consider if you can sell enough of your product or service to make a living. Will you be able to cover all of the expenses and salaries that come with a business?

BUSINESS PLAN

A business plan is absolutely essential. What is a business plan?

Start with an executive summary, which is a high-level description of what the business is going to do. Next, you need a business description that lays out the business in detail. Then, comes the market analysis, who is going to be your customer and who is your competition? Next, is organization management. Who is going to manage the business? Are you going to manage it yourself or are you going to hire someone from the outside to handle your business? Most of the time you are starting off managing the business yourself. Next, you need a sales strategy, what type of sales strategy are you going to encompass? And lastly, you need to include funding requirements and financial projections. What kind of funding do you need to start the business and how much do you project to make?

A written plan is critical. It is absolutely essential you write down the above information on paper.

There are many business plan templates available to help. Even if you are an established business, you don’t need anything complicated. An additional resource is a simple roadmap. This breaks out month by month projections for 2 years. What trade shows will you attend? How many people will you hire? What type of marketing campaigns will you run?

Last, goals are extremely important. You need to set specific goals in your business plan so you know where you are heading.

MEANS OF FINANCING

How will you finance your business? Some of the key questions to ask are how much money will you need to stay afloat? Will you be taking a salary? What will your non-salary expenses be? How many people do you plan on hiring the first year? What about company benefits? Even if you are by yourself, you will need benefits and insurance. These are all questions you need to think about.

Should you self-finance or take out a loan? Self-financing is often recommended if you have enough money in the bank to float the business and your salary for a year or two. This option reduces the pressure. The last thing you want is pressure from creditors. Loans are going to be difficult to procure. If you manage to get a loan, you will have to personal guarantee and you will need collateral.

There is also the possibility for a financial business partner, however, a financial business partner can often lead to meddling and pressure. It also may cause you to run the business differently then you envisioned. Remember, you are starting the business to put your own spin on it!

A fourth option is a funding company. This is a viable option because they will often do your payroll and invoicing for you. Sometimes the funding company will provide a basic ATS system as well that could help you start off. The downside to a funding company is often it is hard to breakaway. You need to pay off loans with interest and sometimes it isn’t financially feasible to breakaway. If you use a funding company, you want to make sure you understand the agreement and know what it takes to step away from the funding company.

Some additional funding options, are family, small business grants, and crowdfunding/internet. It is really up to your discretion though if this is a good option for you. Small business grants tend to be hard to secure and a lengthy process. Crowdfunding, gives you small amounts of money from a large number of people. It is an unusual option, but could work.

How much should you pay yourself? It depends on the industry, but typically your first year’s salary is $34K to $75K. You also have to be prepared to possibly make nothing for a couple of years! It is important to prepare for that. You don’t want to get yourself into a debt situation.

First Year Profits. Very few businesses make a profit their first year. It is incredibly important to not get discouraged if this is the case and continue to soldier on. Generally, it takes two to three years for profits to kick in.

Small Business Owners

September 27th, 2020

One might be led to believe that profit is the main objective in a business but in reality it is the cash flowing in and out of a business which keeps the doors open. The concept of profit is somewhat narrow and only looks at expenses and income at a certain point in time. Cash flow, on the other hand, is more dynamic in the sense that it is concerned with the movement of money in and out of a business. It is concerned with the time at which the movement of the money takes place. Profits do not necessarily coincide with their associated cash inflows and outflows. The net result is that cash receipts often lag cash payments and while profits may be reported, the business may experience a short-term cash shortage. For this reason, it is essential to forecast cash flows as well as project likely profits. In these terms, it is important to know how to convert your accrual profit to your cash flow profit. You need to be able to maintain enough cash on hand to run the business, but not so much as to forfeit possible earnings from other uses.

Why accounting is needed

Help you to operate better as a business owner

Make timely decisions
Know when to hire a team of employees
Know how to price your products
Know how to label your expense items
Helps you to determine whether to expand or not
Helps with operations projected costs
Stop Fraud and Theft
Control the biggest problem is internal theft
Reconcile your books and inventory control of equipment
Raising Capital (help you to explain financials to stakeholders)
Loans
Investors

What are the Best Practices in Accounting for Small Businesses to address your common ‘pain points’?

Hire or consult with CPA or accountant
What is the best way and how often to contact
What experience do you have in my industry?
Identify what is my break-even point?
Can the accountant assess the overall value of my business
Can you help me grow my business with profit planning techniques
How can you help me to prepare for tax season
What are some special considerations for my particular industry?

To succeed, your company must be profitable. All your business objectives boil down to this one simple fact. But turning a profit is easier said than done. In order to boost your bottom line, you need to know what’s going on financially at all times. You also need to be committed to tracking and understanding your KPIs.

What are the common Profitability Metrics to Track in Business — key performance indicators (KPI)

Whether you decide to hire an expert or do it yourself, there are some metrics that you should absolutely need to keep tabs on at all times:

Outstanding Accounts Payable: Outstanding accounts payable (A/P) shows the balance of cash you currently owe to your suppliers.
Average Cash Burn: Average cash burn is the rate at which your business’ cash balance is going down on average each month over a specified time period. A negative burn is a good sign because it indicates your business is generating cash and growing its cash reserves.
Cash Runaway: If your business is operating at a loss, cash runway helps you estimate how many months you can continue before your business exhausts its cash reserves. Similar to your cash burn, a negative runway is a good sign that your business is growing its cash reserves.
Gross Margin: Gross margin is a percentage that demonstrates the total revenue of your business after subtracting the costs associated with creating and selling your business’ products. It is a helpful metric to identify how your revenue compares to your costs, allowing you to make changes accordingly.
Customer Acquisition Cost: By knowing how much you spend on average to acquire a new customer, you can tell exactly how many customers you need to generate a profit.
Customer Lifetime Value: You need to know your LTV so that you can predict your future revenues and estimate the total number of customers you need to grow your profits.
Break-Even Point:How much do I need to generate in sales for my company to make a profit?Knowing this number will show you what you need to do to turn a profit (e.g., acquire more customers, increase prices, or lower operating expenses).
Net Profit: This is the single most important number you need to know for your business to be a financial success. If you aren’t making a profit, your company isn’t going to survive for long.
Total revenues comparison with last year/last month. By tracking and comparing your total revenues over time, you’ll be able to make sound business decisions and set better financial goals.
Average revenue per employee. It’s important to know this number so that you can set realistic productivity goals and recognize ways to streamline your business operations.

The following checklist lays out a recommended timeline to take care of the accounting functions that will keep you attuned to the operations of your business and streamline your tax preparation. The accuracy and timeliness of the numbers entered will affect the key performance indicators that drive business decisions that need to be made, on a daily, monthly and annual basis towards profits.

All the Ws of a Business Plan

June 13th, 2020

Normally when a business idea arises, you know what resources and capabilities you have at the start of your business and where you want to go in a certain period, usually in 3 or 5 years. But what is the way to reach that goal? Where to start? How to arouse investor interest? Even, how to get your business off the ground? Everything seems so easy when you have the great money winning idea and concept. It is how you are going to achieve these dreams and get enough money to keep the business going for many years to come.

Writing a business plan is to build a map that will guide you to where you start making money with your initial business idea. At is very basic structure, your business plan is a mixture of strategies and plans. It involves financials, marketing, staffing and products. Think of it as the foundation to your new business.

WHAT are the reasons that I might need one?
• To look for investors.
• To apply for a loan.
• To establish the viability of your business idea.
• To make improvements to your current business.
• To expand your current business.

All of these types have different emphasises and a different structure.

WHAT is a business plan?
It is a tool or document that describes a business opportunity or idea, the work team, the operational and marketing execution strategies, the business risks and the economic viability of your business. A well written document guides you to turn an idea into a viable business.

It can also be defined in another context in that the business plan becomes a fundamental tool within the analysis of a new business opportunity, a diversification plan, an internationalisation project, the acquisition of a company or an external business unit, or even the launch of a new product or service within the current business.

To summarise, both for the development or launch of a startup and for the analysis of new business investments, the business plan becomes an indispensable tool. So even though you have an established business, you will still need a business plan as you expand and improve that business.

A business plan is never finished and should be reviewed from time to time at least annually but certainly when large changes to an existing company are anticipated. This implies that every plan must adapt effectively and efficiently to the changes, helping the project to continue.

WHAT is the point of a business plan?
Many entrepreneurs think they only need a business plan when they are seeking investment or when the bank asks for one. However the act of business planning, when completed correctly, enables the entrepreneur to carry out an extensive market study that will provide the information required to design the best possible business model that will be both profitable and efficient.

Additionally, the business plan will develop the strategic measures for all functional areas that will enable them achieve the objectives for the new business.
Once written, the business plan will serve as an internal tool to assess the management of the company and its deviations from the planned scenario. Proposing, if necessary, adaptations to the agreed business model in order to obtain updated information for the daily management of the company. This will include preparation of the required changes and processes to bring the business back on track.

So lets dive into the concepts behind business planning a bit more.

The Nuts and Bolts of a Business Plan

March 23rd, 2020

Do you need investors? Looking for a loan? Do you want to apply for a grant? Or has the time just come to do a self-analysis of your business? Are you expanding your business? Looking for new markets? Seeking the next level in your business? These are all times that you need a business plan? What are the nuts and bolds of a business plan?

All business plans have more or less the same sections some even have the same content.
However, when they arrive at the investor’s or lender’s table some remain where they are and others pass to the “I’ll read them later” pile or worse still the trash can! So how do you make your business plan readable and memorable for all the best reasons.

Let’s look at what really is at the heart of a business plan. A business plan is a methodology that defines and integrates the activities that are necessary for a business idea to become a company and provides expectations that prove it will be profitable. In other words, it is the hook to get an investor and tell them that your idea is innovative and will be very profitable. Note those two important words: innovative and profitable. No investor will be interested in a company that is not going to be profitable enough to give them their investment back plus a very healthy profit. Now the what could be an interesting word – innovative. For a company to be successful it must have something that is different to all the other companies working in the same market. After all if your company is going to be the same as all the others, they are hardly going to move over and let you take their customers. No, your company needs to have something different that will attract these customers away from what they buy all the time. So innovative in some way, be it products, business model or service.

Lets add another word that your need to prove within your business plan – viable. Your investor or lender wants to see that you company is going to be viable. If you do a Google search about the “Internet Bubble” of circa 1995 you will see that thousands of investors invested and lent to new fangled internet companies that promised to make them millions of dollars in easy profits. Memories are long and now investors look to see that new companies are going to be viable for the for seeable future so that they continue to receive an income stream and have a good chance of getting their loan or investment back.

Your business plan should be a communication tool selling an original idea that serves to attract and convince people that you have the ability to implement the plan by establishing and managing the company.

At the beginning we highlighted other reasons for business planning. In addition to raising funds, your business plan is also the best tool for you to assess the viability of your business.

So that is the NUTS of a business plan, lets look at the BOLTS that hold it together:

Professional: Internally it should be well structured with an index, page numbers, headings and bulleted paragraphs that explain complex matter. Plenty of graphics break up the boredom of too many words. Externally it should be expertly bound and have a colorful and attractive cover page. It stands to reason that full company details and contact information should also be on the front cover.

Tempting. Written in a way that encourages the reader to assess the possibilities of entering the business. Take care of the writing style, be concise but not brief and certainly not so wordy that tiredness beckons. Keep to the point, zwoding extraneous information that does not support your business planning or business model. Avoid jargon and if you must use initials ensure that the first example is spelt out completely with the initials in brackets afterwards.

Dynamic. You have to be creative, but with some restraint. It is best if you tell a story but not one that is found in the fiction section of a library. If the business you propose does not invite big flourishes, save them. It can be counterproductive to distract the reader. Creativity is important as long as you highlight something about the business and is there to keep the attention of the reader. Creativity must only be used to paint a picture of how the business will operate in the future.

Accurate. Clarity is fundamental, but so is accuracy and truthfulness about the current state of your company and its future aims. A little bit of license is offered by the reader but they do expect you to be truthful about your figures, customer numbers and state of the production of your goods.

Ordered. Guide your reader through your business plan and put supporting documentation within the appendix of the report. Although the key information should be in the main sections of the report, in the appendices you can include secondary data, market study results, resumes of professionals and any letters from recommendation or favorable report.

The last big BOLT that will hold your business plan together is CARE. Your business plan is not just something you have to rush through in order to get your funding. It is the description of what your business looks like now and what you want it to look like in the future. Most business plans start at about 20 pages long for a small business setting out in the world to a maximum of 50 pages for a business seeking major funding. Whatever the size of your business plan, and please practice writing complex ideas succinctly, it should be written with care – after all a good business plan is a roadmap to company success!

Marketing, Promoting and Advertising Your Business

February 28th, 2020

One thing that goes without saying in today’s business world, is that regardless of the nature of your home based business, a website is an absolute MUST. Whether you have a product or service to sell, whether local or global, your business will go nowhere fast if you don’t have an online presence. If you need internet marketing help, you’ve landed on the right article. I’ll give you some home based business marketing ideas that will help you promote your business successfully.

The first step is choosing a domain name and getting it registered. You can build your own website (if you have the time) and host it yourself or you can have everything done by another company (if you have the money). Either way, you have many options and tools at your disposal that can align with your business plan and budget. Also note that you can still start your own home based business even if you don’t have a product or service to sell. There are thousands of individuals and companies that have products you can sell for them while earning a commission, called affiliate marketing.

Of the many business marketing strategies known to man, internet marketing is, hands down, the best strategy to use for promoting a home based business as it is the cheapest method and has the potential for reaching millions of people all over the globe. Driving traffic to your site through online resources is like killing two birds with one stone. You can tackle print advertising by writing articles and publishing them to directories and ezines and by submitting ads to the many available (and most of them free) classified ad sites. Online media advertising encompasses writing press releases and distributing them to press release sites. One of the biggest and most popular online advertising trends today is via social media advertising through sites such as Twitter, Facebook, and LinkedIn where you build relationships with your customers. Forums and communities are also great ways to build relationships which helps promote your home based business in the long run. Simply Google your market or industry with the word ‘forum’ or ‘community’ behind it and search for one or two that seem to be the best fit for you.

All of these methods of online advertising contribute to search engine optimization (SEO), which is to say improving your online visibility and escalating in the search engines like Google, Yahoo and Bing. Your goal is to claim the #1 spot in the organic search results (the results on the left, not the right side which are paid ads). This is where your traffic will come from. If you are 800 in the list of search results, no one is ever going to see your site because very few people have the time or patience to scroll through 800 search results. Research shows that people typically won’t even scroll past 4 or 5 search results, let alone 800.

Can you grasp the importance of internet marketing for any business? If you are new to the internet marketing phenomenon and don’t know exactly where to start, there are many great programs or systems online that walk you through every aspect of marketing your online business. A lot of these systems were created by online entrepreneurs who have spent thousands of their own dollars trying to figure it all out over the years and finally DID. Their sacrifices have made it easier for newbies to become successful at their own online home based business. If you are new to running your own home based business, I recommend you find a great system (do your research, read reviews, ask questions in forums) and start marketing your home business from there. Don’t waste the time and money that so many of us have in going it alone, without a proven system, as it will just set you back further and hinder your progress.