Most entrepreneurs need some degree of finance to pursue their dream of starting a business. You may be working from your bedroom or garage, but you will need money to fund a website and pay for online advertising. You may also need cash to pay for equipment and buy products to sell.

There are many ways to acquire start-up capital, but the most common method is to approach the bank for a business loan. From your perspective, it’s the easiest way. After all, your bank manager knows you and therefore an application for a business loan should be a breeze. Or at least it should be. However, in practice, things don’t always go according to plan – and here’s why.

Your Personal Credit Score is Low

Many people don’t realize that a personal credit score has a harmful effect on a credit application for a business loan. Unfortunately, if you have any bad debt, outstanding credit card payments, or too much personal debt, this will adversely affect any applications you make for business credit.

Read also: Acquire secured loans with bad credit

Lenders look at your personal credit history when you apply for a business loan, even if the business is well established with a long credit history. They want to be certain you are not overextending yourself by borrowing too much money.

You Missed a Medical Payment

Medical debt will also affect your loan application. Unpaid medical bills can remain on your credit file for up to seven years. Someone with a previously high credit score will see their score drop like a stone if they default on a medical bill. Not many people realize that unpaid medical bills have such a dramatic effect on a credit score. Some lenders use the FICO 9 model or VantageScore 3:0 to score debt. In this instance, medical debt is less problematic, but you won’t know this until your loan application is turned down. If you need help with this issue, check out the following link https://creditrepaircompanies.com/medical-debt/.

You are a Victim of Identify Fraud

Identity fraud is on the rise. With such a wealth of information becoming available online, hackers are always one step ahead of the authorities. Millions of people suffer devastating losses each year. Hackers and fraudsters take out loans and credit cards in their name, sell properties that don’t belong to them and cause havoc. The problem is that you may not have a clue until you apply for a business loan and the application is turned down.

All issues with credit files can be spotted long before a business loan application is made. It is good practice to request a copy of your credit file from the major credit agencies before you apply for any type of finance. If you spot any problems or discrepancies, sort them out.

The Bank has a Lending Limit

Banks don’t have bottomless pits of cash to hand out. Most have a pre-determined sum of cash available to businesses, and once the pot is empty, no more loan applications are approved. If you file a loan application at the wrong time, you could be turned down through no fault of your own. It’s unfortunate, but that’s how it works.

Speak to a business loan advisor before applying for a loan. They should be able to advise you if your loan application is likely to be successful (if you don’t fall at any other hurdles).

Your Business Doesn’t Fit the Bank’s Lending Criteria

Always check the bank’s lending criteria before you make a loan application. Some lenders specialize in particular business niches and don’t lend to businesses outside of their area of expertise. For example, your lender might only work with agricultural businesses and if you show up wanting to borrow money for a fintech startup, the bank will turn you down. It doesn’t mean your business plan is flawed in any way – it just means they lack the expertise to assess your application and determine whether it is likely to succeed.

You can prevent this from ruining your chances by thoroughly researching the lender before making a business loan application. Make an appointment to speak to a business loan advisor. Tell them about your business and find out whether it is a good fit for them. They should be able to tell you upfront if this is not the case.

You have a Heavy Debt Burden

Lenders use a number of criteria to assess a business loan application, one of which is your existing debt burden. If you are heavily mortgaged and carrying a significant amount of credit card debt, personal loans, and other unsecured debt, the lender is less likely to approve your loan application. Again, their decision has no bearing on whether your business plan is viable. It just means they don’t think you are a risk worth taking.

You have Made Multiple Loan Applications

Each time you apply for a loan, a credit card, or any other finance, it is marked on your credit file. The more applications you make, the more likely you are to be turned down by a lender. This is unfortunate if you were previously turned down through no fault of your own, but to avoid causing problems, don’t make a business loan application unless you are fairly certain your application will be accepted. And if you are operating in a high-risk business niche, look for a specialist lender who is more likely to be sympathetic to your business loan application.

Being turned down for a business loan is not the end of the world. There are always other avenues of business finance you can explore. Crowdfunding is very popular these days and thousands find financial backers by pitching for money on crowdfunding websites. You may also be able to secure finance by using the equity in your home, although this is a risky strategy, as you will lose your home if you default on the loan.

Consider your options carefully before applying for business finance and make sure you prepare a detailed business plan first.