Banks are often cautious when PAYG (salaried) employees apply for finance - and not without reason. This article explores the hidden hurdles you might face when applying for a business loan, and how to prepare for them.

Why Banks Decline Business Loans - 7 Key Reasons

1. You’re moving from a steady paycheque to a business income

Banks love certainty. A regular wage shows a stable income. Running a business means income can fluctuate, especially at the start, making banks concerned about your ability to meet repayments.

2. No prior business ownership experience

Managing a business is very different from being an employee – and banks know the learning curve can be steep. Banks prefer borrowers with a proven track record of successfully running or managing a business.

3. Business performance isn't guaranteed

Today’s profits don’t always predict tomorrow’s success. Even if the business you’re buying is strong today, banks worry it might change under new ownership. Customer loyalty, staff retention, and operational knowledge may not transfer smoothly.

4. Limited security for the loan

Banks usually like to see extra security, such as property. Business assets (like stock or equipment) often aren’t enough to make a lender feel fully protected.

5. Projections are just predictions

When applying for a loan, you’ll often present future income forecasts. Banks treat these with caution because the numbers cannot be guaranteed until you’re actually trading.

6. Rules are stricter than they used to be

Since the Royal Commission into banking, lenders must be extra careful to avoid putting borrowers into risky situations. Even if you’re confident, the bank has to be responsible.

7. Harder to Exit if Things Go Wrong

If the business doesn’t perform and repayments can’t be made, selling the business quickly or for a reasonable price can be difficult. Banks therefore, are concerned about how they would recover the loan.

What this means for you

  • You may need to offer additional security (like a home or other assets).
  • You should be prepared to show firm business plans and extra savings.
  • Some lenders may still support your application - but it takes careful structuring and detailed preparation.

Thinking seriously about buying a business?

Don’t wait until you hit a dead end with the bank. A broker who understands the process – and the pitfalls – can help structure your application for success from the start.

LET’S TALK EARLY and give your business plans the best chance.