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5 reasons you may not qualify for an SME loan

Hachi Onubedo
12 August 2023 - 3 mins, 33 secs read

Every business owner knows the importance of having access to loans. Whether it’s for surviving tough economic conditions, surviving your cash flow cycle, or boosting your fast-growing business, loans are handy.

There are typically a lot of loan opportunities for small businesses, but for several reasons, your business may not qualify for a loan. This is because traditional financial institutions have strict eligibility criteria for loans. 

In this article, we will talk about reasons your business may not qualify for a business or SME loan, here they are.

You don’t have Collateral

Most lenders require businesses to provide some collateral as security for loans. Collateral assures the lender that they can recover their funds in case the borrower cannot pay back. Common examples of items that can be requested as collateral include real estate, vehicles, business assets, etc.

However, not every business owns assets that can be used as collateral. For instance, if you run a business that sells via the Internet, there’s a significant chance that you don’t own assets that can be used as collateral. This means you may be unable to get a loan from your financial institution. 

Your Credit Score isn’t good enough

A credit score is a measure of a business or individual’s likeliness to repay a loan on time. It is typically generated based on the business’s credit behaviour i.e. whether they’ve borrowed money and how they paid it back.

Most new businesses have no credit history, hindering their ability to access the loans required to help them grow. Also, if a business has previously borrowed but failed to pay back in time, it may affect its ability to get loans in the future.

Your Business Plan is not Convincing

Most lenders require businesses to submit a business plan as part of their loan application process. Having a poor plan can leave the lenders unconvinced that your business is able to pay back the loan.

A good business plan should be comprehensive but concise. It should talk about your business history, operations, future plans, the kind of loan you’re looking for, and how you plan to disburse the loan to drive growth for your business. Make sure to spend some time creating your business plan or hire a professional to do it for you.

Your Business Doesn’t Have Enough Cash Flow

Oftentimes, a lender will ask a business to present a bank statement or a financial statement where available. This statement is sometimes referred to as a cash flow statement. A cash flow statement is any document that shows how much a business earns and how much it spends.

Having sustainable and predictable cash flow is a good sign for most businesses. However, there are many reasons a business may not have a sustainable cash flow. Maybe it is a new business, or it has just gone through a difficult time. Those kinds of businesses may struggle to get a loan. 

Your Business is Just Starting

Despite often being the most in need of a loan, new businesses struggle to get access to credit. Many of the reasons we’ve highlighted are challenges that new businesses often face when looking for loans.

New businesses typically lack credit history, adequate cash flow, or a clear business plan, any of which may make a loan officer decline the request for a loan. Also, the loan officer may simply be wary of the businesses’ chances of survival.

How to get an SME loan from Oze

Securing an SME loan can be a critical lifeline for small businesses looking to grow, expand, or overcome financial challenges. However, not every business will qualify for such loans, especially with traditional lenders. This is why you should consider getting a loan from Oze.

Unlike traditional lenders, Oze does not require you or your business to have collateral or a high credit score before giving you a loan. It also doesn’t require you to have a long business history. All you have to do is use the Oze app to record your business transactions for up to  30 days, and you pre-qualify for a loan. 

Want to give Oze a trial? Use this link to download the app

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