Why Do Banks Deny Start-up Loans?

It is challenging for a new venture to get approved of a start-up loan from a bank or private loan provider for a business start-up.

New business loans are very risky loans that any bank or lender might face. So anyone will be not much sure of start-up loans.

Why Is Business Start-Up Risky?

If you wish to know why new business ventures or start-ups are risky for lenders, then have a look here. Lenders always expect borrowers to have:

  • Capital: Business assets that are utilized for creating products and services and that which can be changed into cash for making payments on the loans for business. Any new business usually will be having a few business assets.
  • Collateral: Cash for contributing to the new business. Any new business owner will be having very little collateral until he can make use of personal assets or there is a co-signer with some assets for pledging.
  • Capacity: A proper track record for showing that the business has the potential of generating sufficient money for repaying the loan.
  • Character: It is a good credit rating. A business owner with a good credit rating such as a business credit or a personal credit does not mean that he will be able to get the approval of a business loan. But if he has a poor rating it will be quickly turned away.

Reasons Why Banks Refuse Start-Up Loans

  • Absence Of Experience: Banks are seen to deny start-up loans to a person who has not a minimum working experience of 1 year in the profession.
  • Absence Of Management: Lenders do not feel comfortable with a new business start-up that has no powerful and expert management team for adding their assistance to let the business grow.
  • Absence Of Customer-Base: It is one of those circumstances, you will not get a loan approval until you have any customer, but you can also not start the business and get the customers without getting a loan. If you can make them believe that you are having some potential customer backup it can create a good impression on any lender.


For instance, mentioned are some typical replies from banks to a young man who was looking out for a start-loan to begin his professional practice.

Banks will simply say that they do not offer any loans to any start-ups. You can move to other banks. But it will take time for finding the perfect one.

A bank will be giving you a certain amount ($60,000) that is the limit for SBA express start-up loans.

So before talking to a bank, contact the SBA. Learn about their criteria. Few banks are ready to trade in with the additional paperwork as well as the hassle of the SBA loans. You can contact SBA and get the tentative approval for reducing the objections that the bank put.


Does Personal Credit Have Any Impact On Start-Up Loan’s Approval?

A new business will never have a business credit of its own. So the bank needs to have a look at the credit of that person who owns the start-up. Banks are seen to frequently say no to start-up loan appeal as the borrower’s personal credit includes problems. For instance:

  • The problem can be as small as a negative rating on a borrower’s credit report. But it will be all that the bank will be considering and denying your start-up loan.
  • A low credit rating will affect your ability of obtaining a start-up loan. Nowadays, any credit score below 800 will be questioned. So you must know your credit score and work for raising it.

Can You Get Your Start-Up Loan Sanctioned?

A great way of getting a start-up loan sanctioned is by crafting the plan of your business carefully for answering each and every question that a loan provider may ask along with those objections that can get raised.

  • Show may you plan for contributing capital to your business. What will you be contributing to your business on your own? What are you already having?
  • Show from where you will be bringing your collateral as well as credit report of you along with the co-signer if present.
  • Show the management that guides you, the advisors as well as executives you need to guide your business fast to profitability.
  • Add a spreadsheet to show when the business will be having a great cash flow and be sure that you will spending less than you will be bringing in.
  • Show the experience you have with any similar business or that you have expert management team beside you.


So if you are thinking of starting up a new business, look out for a loan for funding. Start-ups loans are of great help if its application is approved. Apply for funds from a private loan provider and get the loan approved for your start-up.

Carolyn Rhea

Hi,I am Carolyn Rhea, author of NIME 2016. Money management tips can help you and your family feel more financially secure.