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D E N I E D

If letters could kill!

When it comes to the approval and rejection of business loans, some industries are notorious for being rejected while others seem to glide through the process. The truth is, when it comes to qualifying for a small business loan, there’s no be-all-end-all answer, there are an infinite number of factors that will dictate not only whether you’re accepted or rejected, but also the terms that you’ll be able to get.  

High Risk Vs Low Risk Industries

Where does your business stand?

Lenders generally consider industries to be ‘high-risk’ if they have a higher predisposition to fail. As such, if your business has anything to do with alcohol, gambling, marijuana or adult entertainment, you can bet your bottom dollar it’s going to be tough getting the funding you need - though not impossible. These industries are considered ‘high-risk’ because they’re subject to regulations that often change.

‘Vanilla’ industries such as retail and restaurants might also be considered risky due to the fluctuations in revenue. Then there are the industries facing decline due to the rapid pace of technological change forcing certain industries into steady decline. The newspaper industry, for instance, has become ‘high-risk’, declining $5.69 billion in the last five years alone and predicted to continue crumbling at an average annual rate of 3.67% over the next five years according to IBISWorld.

So which industries are lenders more likely to loan to? This is a tricky question seeing as many factors are involved, but you can certainly get an idea of the industries more likely to qualify by looking at the industry conversion rates. Lending Express went fishing in its data to uncover the top five industries that were most likely to qualify for a business loan throughout the year 2018. Will your industry make it to the top five? Keep reading to find out!

What Are Lenders Looking For?

Before we get into the ‘chosen’ industries, let’s first take a look at what lenders are actually looking for in the underwriting process.

1. Business owner’s personal credit score

You’re probably thinking to yourself ‘why do they want my personal credit score, surely lenders should be looking at my business credit score?’ and that’s a fair point. Your business credit score will also be analyzed, but seeing as you are the business owner, in the lenders’ eyes, a business reflects its owner. And what better way to see how the business will handle money than by going directly to the source and looking at the owner’s personal credit score? Fair or not, this is the underwriting process at its core.

Unless your business has an unprecedented credit history stretching to the moon and back, a very low personal credit score could see your chances of getting a business loan take a hit. But don’t fret, there are other factors thrown into the mix as well…

2. Business age

The longer you’ve managed to stay in business, the more likely you are to stay in business - it’s simple logic. The majority of lenders will have a minimum range that you’ll have to meet ranging from around three months of experience in business to up to two years.

3. Revenue

Money, money, money. It’s all about the money, after all!

Lenders need to see how much 'moolah' your business is churning to determine whether your business will be able to pay back the loan on time or not.

While these three main factors are essentially the bones of the underwriting process, there are many reasons behind business loan rejection and approval. Some lenders will also take into account other factors including collateral, entity type and even your industry - among others - which will all vary depending on the type of loan you’re applying for.

Industries Most Likely to Qualify for a Business Loan

Without further ado, we give you the industries most likely to qualify for a business loan according to Lending Express’ business loan applicants (2018). With nearly 100 different industries applying for a business loan via Lending Express’ platform, it was these five industries that stuck out with the highest conversion rates. This simply means, from the number of applications received, these are the industries that had the highest percentage that ‘converted’ and proceeded to actually receiving a business loan.

Some of these industries come as no surprise. Doctors offices, legal and health services are all strong industries considered ‘low-risk’ and less likely to fail. After all, these are services that everyone needs and aren’t going to be running out of business any time soon. And the same goes for transportation and travel - everyone needs to get from A to B.

A surprising industry that came in at second place was tattoo and piercing parlors. New career change perhaps? Well, before you get too excited, you have to keep in mind that there may be other reasons that the conversion rate was so high. With tattoo and piercing parlors, we noticed in our data that the average loan size requested was much smaller than the other industries mentioned. This implies that perhaps they had a higher conversion simply due to requesting, and being handed a lower amount of cash. On top of that, there was a low quantity of these applications in comparison to the other industries mentioned here, we can’t dismiss the possibility that it’s just a fluke, and any other industry could have snagged second place.

No matter the results of this data, it shouldn’t stop you from applying for business financing, nor does it make your industry any less worthy.

About the author: Annabelle is a writer with Lending Express, dedicated to simplifying and bringing color to complex concepts in the fintech arena. Lending Express is a technology company committed to creating a better world of funding for SMBs. Using technology, the company optimizes SMBs funding odds and matches them with personalized funding solutions in the simplest way possible.