As a restaurant owner, securing funding is essential to the success and growth of your business. However, it can be frustrating when getting your business loan application denied. There are several reasons why this may occur, and understanding these reasons can help you improve your chances of approval in the future. This article will discuss the top 7 reasons your bank may have denied your restaurant loan application. By identifying these reasons, you can take steps to address any issues and increase your chances of securing funding for your business. So, let's dive in and explore why your small business loan application may have been rejected.
As the old saying goes, personal credit is king. Most business financing products review both the personal credit history of the business owner and the business credit score. The better the rate and terms of the business funding product you are applying for, the higher the credit history standards.
Just because you are turned down for personal credit reasons does not necessarily mean you cannot get financing for your business. It just means that the specific type of business loan you were denied isn’t the right one. Ensure all options have been explored before giving up your search for business funding when denied for credit reasons.
AdvancePoint Capital’s business funding marketplace has a variety of products for credit-impaired business owners. If you want to learn more about credit and what business lenders look for when making an underwriting decision, the following guide will help you understand in greater detail how they view business credit history and personal credit score.
2. Time in Business
The time in business generating revenue will dictate what business funding products can be offered. If you are less than three years in business, many traditional business loan products will not be available. But, there are a lot of business funding alternatives to consider. AdvancePoint Capital can guide you through the options available for new and well-established businesses.
3. The Restaurant Industry Is “Risky”
Some banks find the restaurant industry too risky to lend to. So, even if you meet the normal requirements for a traditional long-term business loan or business line of credit, you may be left out in the cold just because of the nature of the restaurant industry. The good news is that there are many products and business lenders who are willing to take on the risk.
Some small business loans with attractive rates and terms may require collateral to approve business loan applications. Traditional lenders require collateral, and you will not get approved if you don’t have it. Many business funding alternatives exist, such as unsecured business loans that do not require certain types of collateral. Contact AdvancePoint Capital for details.
5. Debt Utilization Is Too High (Or Not High Enough)
Lenders and funders look to see what kind of debt you currently have to see if you are overextended and can or cannot afford more debt. On the other side of the coin, you may be viewed as high risk if you lack any debt history, so a balance is ultimately what you are striving for. Some business funding products have more tolerance for debt utilization. Not all business funding products look at debt utilization the same.
6. Cash Flow
Cash flow is a very important factor for all business funding products. Cash flow determines the ability to repay a business loan while managing normal business expenses and still having a cushion of cash flow. If your cash flow dips too low, approval may be difficult with some business funding options, and alternative business funding options may need to be explored.
7. Choosing The Wrong Loan Or Wrong Business Loan Originators
This reason for denial is more common than you may think. Banks and traditional business lenders are limited to business loans and/or lines of credit. Some banks offer SBA loans, and others do not. Also, banks and traditional business lenders have fewer business finance product options overall than a business finance marketplace.
Every business originator differs in terms of what products are offered, so it’s vital that you ask what programs and business finance products they offer. You need to find out if they can match your qualifications and needs, compared to what's out there in the business finance marketplace. Alternative lenders have products that banks do not. Choosing a business loan originator who understands your qualifications and loan application is important, so time, effort, and in some cases, money is not wasted.
Additionally, there are many different business funding products that will allow for credit issues, no collateral like unsecured loans, low daily cash flow, and many other reasons that could cause a denial of one business loan but not for another. Not all business funding products are created equal; neither are business loan originators. Find the best originator to handle you business loan application.
Different Types of Business Loan Originators That Offer Business Funding
- Traditional banks (Bank of America, Wells Fargo, Chase, etc.)
- Credit Unions
- SBA Approved Lenders
- Online Business Lenders (Fintech) or Online Business Originating Marketplace
- Business Loan Broker’s
- Long-Term Business Lenders
- Equipment Financing Companies
- Invoice Factoring Companies
- Private Business Lenders
- Hard Money Business Lenders
- Commercial Real Estate Lenders
The 8 Best Small Business Financing Alternatives for Restaurants
Here is a list of the best small business financing alternatives for restaurants.
Long-Term Business Loans
Long-term small business loans are loans for over two years. Businesses are offered a fixed amount upfront and charged principal & interest. Typically, long-term business lending is for business expansion and growth or to finance large long-term projects. This business funding option is used for long-term projects and needs.
Business Line of Credit
Business lines of credit is a revolving credit facility extended by a financial institution to a business, allowing businesses to draw funds at will up to a set limit. It provides access to capital on the fly for business financing needs. This product helps manage cash flow, purchase items for the business, or cover business expenses.
Small Business Credit Cards
Credit cards are a supplemental financial tool for paying expenses and purchases for the business. This revolving credit line issues a card that allows you to access funds when need up to a credit limit.
Short-Term Small Business Loans
Short-term business loans are business loans whose term ranges from 3 to 36 months depending on your qualifications and the financial institution you choose. Term loans have fixed loan amounts, terms, and payments and are not flexible like a line of credit. The cost is calculated by interest rate or a factor rate over a shorter time than traditional loans.
Short-term business loans are an alternative to traditional business funding. Short-term small business loans charge more for costs and are shorter-term. The payments are more frequent to compensate for the greater risks business lenders take in offering this product. Short-term business loans require less documentation and creditworthiness is more forgiving than other options.
Business Cash Advance
Business Cash Advances (BCA) are also called Purchase of Future Sales Agreements that advance future sales at a discount to a business. This is not a loan, but an advance of future revenue of the business. You pay back a greater amount than the advance called a "specified amount". This gap between the advance and payback amounts is called the “factor rate or cost,” which is a fixed cost. This is not principal and interest costs. The repayment of the advance is calculated by a set percentage of future revenue. A "convenience" fixed ACH payment is collected daily or weekly, from a business bank account calculated by the specified percentage of future sales agreement.
Once a month, reconciliation can occur. If the ACH payments exceed the set future percentage of sales, this can trigger a refund for overpayment, to balance the set future payment percentage of sales to the current revenue. This process of repayment based on future sales continues until the payback amount is paid back in full, no matter how long it takes. The payback process is directly attached to future sales so no date certain is available for full payback.
Merchant Cash Advance
A Merchant Cash Advance (MCA), is a Receivables Based Sales Agreement, that operates similarly to BCA. The repayment process is different though, which is connected to future credit card processing rather than total monthly bank deposits with a fixed ACH payment. MCAs take a set percentage of future credit card processing as repayment at the time of the batch of credit cards. Restaurants appreciate this repayment process as it's directly attached to future sales which helps balance profitability compared to loans with fixed payments no matter the revenue fluctuation. This small business funding is used primarily for working capital needs.
Businesses that use equipment to operate their business often turn to equipment financing for purchases that uses equipment as collateral. Business owners must have good to excellent credit, but limited paperwork is necessary to get approved.
Small Business Administration (SBA) Loans
The Small Business Administration (SBA) is a federal agency that supports small business through small business loans. SBA sets the programs and guidelines for approved SBA lenders to issue business loans. These small business loans have great rates and terms, but there is a thorough and lengthy application process with strict credit requirements.
When looking for restaurant financing, it starts with choosing the right financing institution that can match your need and qualifications with the best business financing option that is available in the marketplace.
Shop for business funding and compare products, rates and terms that various business funding originators offer. Check the experience, knowledge and reputation of the lender and always ask for terms and disclosures in writing.
Consider the rate, cost and terms against the reason you need money before making decisions on business funding. Does the risk out way the reward? Do a cost vs. value analysis.
How to Apply for a Business Loan for Your Restaurant Using Advancepoint Capital’s Business Funding Marketplace
AdvancePoint Capital offers a marketplace of products that best suits your qualifications and specific need. Our online form is simple to fill out so you can talk to one of our business finance specialists and determine best products and terms for you to consider.
The fast, convenient, and straightforward way to get the money you need for your business – now! Get your quote today by filling out our simple form.