Why do banks turn down small businesses in Canada so often? Most business owners who get declined don’t even get a clear answer. The bank sends a letter or an email saying your application was declined. Maybe they mention credit or insufficient history but nothing specific enough to actually tell you what happened. So you’re left guessing.
Credit Score
Banks have a threshold and if you’re below it they won’t move forward. Doesn’t matter how well your business is doing right now. Your personal credit took a hit a few years ago because of a divorce or a slow period or medical bills and that’s still sitting on your file. Banks look at that number and make a decision before they even get to the rest of your application.
You could be doing $50,000 a month in sales and still get declined because of something that happened in 2019.
Time in Business
Banks like to see at least two years. Some want three. If you opened eight months ago and you’re already profitable they don’t care. You haven’t been around long enough. Newer businesses get hit with this constantly even when the numbers look good and there’s not much you can do about it other than wait.
Not Enough Documentation
Banks want everything. Tax returns going back two or three years, financial statements, business plans, cash flow projections, sometimes a personal net worth statement. If you’re missing any of it or something doesn’t line up the way they want it to your application gets flagged or rejected.
A lot of small business owners don’t have a bookkeeper or an accountant keeping everything perfectly organized. That’s just the reality of running a small business. But banks don’t really make exceptions for that.
Industry Risk
Some industries make banks nervous. Restaurants, construction, trucking, seasonal businesses. Banks see higher failure rates in certain sectors and that affects whether they’ll approve you. This is one of the bigger reasons banks turn down small businesses that are actually doing well financially.
Asking for Too Little
Banks have a cost to process every loan application. If you’re asking for $20,000 or $30,000 the bank might not see it as worth their time. The overhead to underwrite and service a small loan is almost the same as a large one so they’d rather put their resources toward bigger deals. Small business owners looking for working capital get caught in this gap a lot. The amount they need is too small for a bank to bother with.
What to Do After a Bank Turns Down Your Small Business
A bank saying no doesn’t close the door on funding. It just means your business doesn’t check the boxes banks care about.
Alternative lenders like Canada Capital work differently. We’re focused on your sales not your credit history from years ago. We work with newer businesses, businesses in industries banks won’t touch, and businesses that need amounts too small for a bank to care about. We’ve funded people who got declined by multiple banks and had money in their account the same day.
If your business has consistent revenue coming in there’s a good chance you can get small business capital through us. No collateral, no perfect credit score required. We go into more detail on how that works here.
Other Funding Options When Banks Turn Down Small Businesses
Knowing why banks turn down small businesses at least gives you something to work with. Some of it you can fix over time like rebuilding credit. Some of it you can’t like how long you’ve been open. But you’ve got more options than just your bank. If you want to see what fast business funding looks like when it’s not based on the same criteria banks use apply here.
