Reasons Banks Can Refuse A Business Credit Account

A business credit account provides a business with a way to access credit necessary to expand their facilities, higher workers or grow the business. Having access to credit is both important and vital to a business and its survival. There are reasons that a bank can refuse to allow a business to open a credit account or extend credit to the business.

Refusal Based on Time in Business

The amount of time that a business has been around can determine whether a bank extends credit or not. Newer businesses do not have an established history or track record that is sufficient enough for many banks to consider worthy of business credit. The bank’s concerns in this regards is whether the business will fail in a short period and default on any provided to the business.

Refusal Based on Credit Rating

The credit rating of the business or its owners is another factor that is considered by banks. A business with a low credit rating will be declined at a faster rate than a business with a good or excellent credit rating. Banks are leery of carrying bad credit risks on its books and will seek to avoid doing business with companies that it fears will be unable to pay back a loan or credit that has been extended. Businesses with bad credit should not consider attempting to open a business credit account in order to avoid the embarrassment of being turned down.

Refusal Based on Type of Industry

Some banks may refuse to provide business credit to certain industries or business types that may be subject to prolonged economic downturns.  Retailers and seasonal businesses tend to be subject to this restriction to accessing business credit.  The unpredictable or inconsistent flow of revenue will cause a bank concern over repayment of long term credit and make the bank less receptive to extending credit under these circumstances.

Work with a Bank the Business has a Relationship With

A business can seek ways to improve its standing with a bank, regardless of its age, credit rating or business type, in order to receive credit. The first way in which a business can enhance its chance to obtain business credit is through working with an institution that the business has an existing relationship with. In this scenario, the business is already known to the bank and the relationship becomes the basis for the loan more than any of the factors a bank considers when extending credit.

Secured Accounts

A business may also ask for a small, collateralized or secured credit account  that can be paid back relatively quickly. This type of account has the backing of a specific asset or collateral of the business and gives the bank assurance that in the event of default the collateral secures the credit amount.