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Seven Reasons Banks Decline, and What a Private Lender Does With Each

A decline letter rarely says why. These are the seven reasons behind most of them, and how each one is handled by a lender that underwrites the business rather than the box.

A bank decline usually arrives as a form letter, and the reason on it is a category, not an explanation. Having seen a great many of them, the real reasons cluster into seven, and each has a different answer outside the bank.

1. Time in business

Most bank credit policies want two years of operating history, some want three. A business eighteen months in with strong deposits is declined on the calendar alone. Private lenders underwrite on the statements, and six to twelve months of consistent deposits is often enough for working capital and equipment.

2. A credit score under the policy floor

Banks set a personal credit floor, often in the high 600s, and do not look past it. Revenue-based products and equipment finance weigh the score lightly, because the repayment comes from deposits or the asset, not the owner's credit history. A 600 score with $60,000 a month in deposits is a fundable file.

3. Industry

Restaurants, trucking, construction, cannabis-adjacent, and anything the bank's policy labels high-risk get declined regardless of the numbers. Private lenders specialise; some of the best equipment lenders work only in trucking, and there are advance funders whose whole book is restaurants.

4. Debt-service coverage below the ratio

Banks want cash flow to cover proposed debt payments by a margin, commonly 1.25 times. A business with lumpy income can fail the ratio in the wrong quarter and pass it in the right one. A lender reading twelve months of statements can price the average; a lender reading one tax return cannot.

5. Collateral

Banks want something to lien. Service businesses with no real estate or equipment have nothing to offer, and are declined for it. Revenue-based products need no collateral; equipment deals use the equipment; receivables can be financed on their own.

6. Existing advances or a recent bankruptcy

Open advances on the statements, or a discharge in the last few years, end a bank conversation. Private lenders treat open advances as a consolidation opportunity, and several will look at a file two years past a discharge if the business has been clean since.

7. The request is too small to be worth the bank's process

A $75,000 request costs the bank the same work as a $750,000 one, and the small one is often declined or stalled for that reason alone. Private lenders are built for the size: a $75,000 advance or line is a normal Tuesday.

What this means for you

A bank decline is information about the bank's policy, not a verdict on the business. Knowing which of the seven applied tells you which product and which kind of lender to go to next, and that is most of what a good broker does with a declined file.