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Top 6 Reasons Banks Won’t Loan Money To Your Business

If you’ve tried applying for a bank loan in the past, then you must know just how strenuous the entire process can be. From the long queues you have to endure before seeing the agent assigned to you, to the number of times you get told “please come back tomorrow,” and every other glitch in between, things can get really frustrating when you visit a banking hall to apply for a business loan.

Not that any of the frustrating procedures would have mattered in the end if you got what you went for. But the fact that you might even get rejected – after spending so much time, effort, and money applying – further adds salt to the injury.

But why exactly do banks reject people’s business loan applications?

Let’s find out some of the most common reasons below.

Poor cashflow

Banks won’t loan your business money if you don’t have enough money coming into the business. That is, if you don’t have a steady revenue stream and consistent cash flow coming in every month, banks will turn down your application. With business loans, banks believe that if a business has been generating enough revenue, it would be easier for them to meet the obligations of their loan repayment. But for a business with an inconsistent cash flow, the chances are that they may default on their loan repayment as soon as their revenue dries up or goes on a downward spiral.

Insufficient collateral

Unlike what you have with personal loans, banks often demand that business loans be secured with sufficient collateral so as to protect their interests in the event of a default or loan crash. Although in the times past, some banks do give their people business loans without asking for collaterals, the habit of business owners defaulting on loan payments and using schemes like the IVA to write off debt is what instigated a reform of the system.

So, even if you decide to use an IVA debt settlement scheme later, the bank won’t be too bothered, as they have a property of yours waiting to be impounded.

Unfortunately for small business owners, the sorts of collaterals demanded by banks are not what they have or could afford to own. As a result, they get turned down when they apply for loans.

Debt-to-revenue ratio

Banks might refuse to loan your business money if they discover that you’ve already taken loans from other lenders. By assessing your debt-to-revenue ratio, banks would analyze whether the cash inflow to your business is enough to clear any existing debt you have and also to meet the loan repayment terms of their own agreement with you.

In fact, in most cases, once they discover that you’ve already taken a loan from somewhere and that you haven’t completed the repayment, they would turn your application down immediately because the last thing they need is a client that would default on their loan payments halfway and start looking for help with bailiffs once they begin to chase after them.

Number of active customers

While banks may not be able to accurately determine the number of customers patronizing your business, they’re often skeptical about dealing with businesses that receive the bulk of their trades or orders from only a select number of customers.

So if your business is still at the stage where it is only attracting regular customers, it might be difficult for you to get a bank that’s willing to transact with you.

Insufficient credit

By now, you must know already just how important credits are to almost all lending institutions. Usually, most of them would require that you first have a good-to-decent credit score before you can be considered for loans.

But while other institutions such as credit unions and peer-to-peer lending institutions might be willing to cut borrowers some slack and accept scores lower than 600, banks are known not to settle for anything less than 720.

So if your business cannot measure up to this credit score requirement, then the chances are that you will be rejected when you apply for a loan.

Economic concerns

Sometimes when banks refuse to lend businesses money, it is because they don’t trust the prevailing economic conditions. If they feel that the current economic conditions aren’t favorable for getting their money back in a timely manner, they might decide not to loan money to businesses.


As you’ve clearly seen from the reasons stated above, your business’s inability to secure loans can be linked with a lot of factors. So before you apply for that $10,000 business loan, be sure to review these possible reasons for rejection and act on them, so that your application doesn’t get declined.