3 reasons business loans are not approved

I was reading the results of a survey conducted by the Business Development Bank of Canada (BDC) that highlighted three main reasons why companies seeking financing were not able to obtain the loan they wanted.  In my experience working with businesses to secure debt financing I agree with the reasons and would suggest an additional reason that supersedes them all.

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The most popular business loan request we get

“I own a business and we need some money, can you help?”

“What do you need the money for?”

“Oh lots of things…”

“How long do you need the money for?”

“Maybe 6 months to a year”

“How will you pay it back”

“Well we are having a really good year and just seem to be a little short so we need to borrow some money to get over the hump”

This is the most common conversation I have with small businesses who are looking to borrow money.  They do not always know exactly why they need money and are not able to articulate how they are going to pay it back.  The most popular business loan request we get is for a business line of credit.  The problem is that a business line of credit usually means “working capital” (see blog here).  Working capital (and lines of credit) are very difficult to get.

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