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What should you do if the lender rejects your application?

Has your loan application been declined? Have you made an entire business plan around this short-term mortgage, and the answer is, “Sorry, not this time!” Do not worry; sit back and relax. You are not alone in this situation, and many applicants face rejection of loan applications. If your application is rejected, keep pursuing your goals. Figure out the problem before applying for alternative funding.

1. Understand why the lender rejected your application

The first step is to find out why this application was unsuccessful. Unfortunately, the lender rejected your loan application, but it is important to look into the details and make sure your assumptions are correct. That way, whenever that happens, your next application may have a better chance of success. Applying for a loan too often can result in all applications getting rejected and hurting your credit score.

Here are some reasons why lenders decline 1st mortgage or business loan applications:

  • Low credit score

Bad credit will adversely affect your application for a business loan. The lending institute will immediately decline the loan application. A credit score is a number that you must maintain to avail of business loans at low-interest rates. Checking your credit score and obtaining a credit report is mandatory for traditional lending options, however private lenders do not have this criteria.

  • Incomplete application or documents

In addition to the loan application, the applicant must submit loan documents specified by the lender. You must submit all requested documents with the necessary details to complete your application. You should not submit incomplete, lost, false, forged, or counterfeit documents to any financial institution. It can lead to rejection.

  • Lack of effective business planning

Every borrower should be aware of the type of business loan for which they are applying. To be successful, you should prepare a specific, self-designed business plan and present it properly during your loan application. Traditional Banks hesitate to lend to business owners and entrepreneurs without a business plan and adequate business information. Whilst banks have this criteria again private lenders have much less requirements.

  • Inadequate cash flow or collateral

A company’s cash flow is the primary source of information lenders use to assess the ability to repay the loan. Insufficient cash flow can cause banks to lose confidence in you, leading to 2nd mortgage loan declines. Maintain proper cash flow by arranging bills and eliminating extra charges.

Second, not all banks offer unsecured loans. For startups, business owners, and corporations wishing to apply for secured business loans or secured loans, it is mandatory to provide sufficient collateral required to get the loan amount. Again, insufficient collateral by the applicant will result in the refusal of the loan. You can submit collateral, including residential or commercial real estate.

  • Credit Beginner Startups or Applicants

A “New Credit” is a customer with no current or previous credit use and does not have or maintain a credit score. These clients who want to start their businesses need help getting loan approvals or having a loan declined, as banks classify them as high-risk applicants. Therefore, a “credit newbie” or startup applicant who is not very familiar with the banking industry should first start using basic credit products such as credit cards. When using a credit card, the Customer should not maintain a high credit utilization rate above 30% of the total approved limit. After building a satisfactory credit score, a traditional bank may then look at an application, however private lenders are also an alternative for a short-term mortgage.

2. Remove errors and negative comments from your credit report

After identifying the reason for rejecting the 1st mortgage application, check your credit report. Report copies are available free of charge from all three credit bureaus. Negative grades can affect your creditworthiness. When reviewing your credit report, ensure each account listed is yours and is accurate.

You can appeal any inaccuracies in your credit report to one of the three credit bureaus. You can pay any credit repair company to pinpoint the bad points or do it yourself. You are free to object to any incomplete or inaccurate information.

3. Other important eligibility improvements

In addition to removing errors and negative comments from your credit report, a borrower should consider improving the following key factors to improve your loan application.

  • Credit score

Poor credit may result in the rejection of your 2nd mortgage application. Traditional lenders use this score to assess their risk as borrowers. Different lenders consider varied scores to be good, average, or bad. To know the perfect credit scores, you must see the eligibility criteria of respective lenders. Some tips to improve credit score are paying back on time, limiting the use of credit cards, and paying all the utility bills timely.

  • Debt to income ratio

Lenders can also reject 1st mortgage applications if the DTI ratio is too high. Look at this number to gauge your ability to repay your new loan while managing your current debt. Lenders generally prefer a ratio of 36% or less. However, in some cases, they may consider applications with up to a percentage of 50%.

To calculate your DTI, the lender divides the current monthly debt burden by your monthly income. For example, if your current monthly debt is $3,000, your gross income is $4,000, and your DTI ratio is 75% ($3,000 / $4,000).

  • Increase Earning

Increasing your income is easier than doing it, but it can help you earn more credibility. The higher your income, the lower your DTI ratio may be. You will likely meet the lender’s minimum DTI requirements. To increase your income, consider starting a lucrative side business or mastering a popular skill to increase your earning potential.

End Verdict

Feel free to ask the lender to explain why they have declined the short-term mortgage application. Before applying for another loan, double-check your credit report to ensure everything runs smoothly. See if your credit score has improved. To increase your chances of approval, you should wait until you meet the lender’s requirements or choose another lender better suited to your financial situation. Always remember that although traditional lenders have arduous criteria to meet private lenders have a much more relaxed approach to business lending.

Can Short-Term Mortgages Be Advantageous For Business Owners In New Zealand?

Everyone, whether a company or an individual sole trader may face financial crunches from time to time. Short-term mortgages where a business owner borrows money for one to twelve months can be an enormous relief in such a time. A business can borrow money during low season sales, to cover daily expenses, expansion, and more. A sole trader may need a loan to cover unexpected expenses. Whatever the reason, a loan for a short term offers several benefits.

Advantages of short-term mortgages for business owners in New Zealand

Let us now check out the various benefits of short-term mortgages for business owners in NZ.

1. Short-term loans get approved quickly.

One significant characteristic of short-term loans is quick approval. In comparison to traditional loans, these get approved within 1 business hour. You do not have to pass through an extended application process for approval. So businesses can rely on short-term loan lenders to meet unforeseen expenses by getting funding in 24 hours.

2. Simple application process

Getting a traditional loan from a bank or a financial institute is tough. A start-up business and individuals having poor credit scores will not qualify for a long-term loan. In such cases, a short-term business loan is a lifesaver. Due to the low-risk factors, lenders agree to lend to people even with a bad credit score.

3. Competitive interest rates and less interest to pay

The duration of short-term loans varies from one month to one year. The loan amounts are normally less than long term mortgages. Therefore, the interest you pay over the term is a lot less. Long-term loans involve borrowing large sums of money for a period of 10 to 30 years. In a short-term loan, you will surely end up paying less interest than in any other form of financing, as the term is months not years. Although interest rates may seem higher, you only have to pay it for no more than a year. This way, you will save money in the long run. Paying less interest means saving money. You will save thousands of dollars if you opt for a short-term loan rather than a 30 to 15 years loan.

4. Short-term loans on mortgages offer low-interest costs

Short-term business loans usually have higher interest rates. But in the case of a first and second mortgage, low-interest rates are generally offered for a short period. So along with paying for a shorter duration, you can also pay a lower interest rate. T

5. Short-term business loans are handy

Short-term business loans are a lifesaver in liquidity problems during an emergency. Small businesses and start-ups cannot generate revenue and sometimes need assistance with cash flow. Cash flow and capital are everything for them. They need money for everyday expenses and business expansion and growth. Imagine a scenario when you are in an emergency and need to purchase a piece of equipment for your company. Investing in that equipment will reduce the available funds from your working capital, and not buying it will mean lagging behind the competition. Securing a short-term business loan is your way out of many similar situations.

6. These loans can help in improving your credit score

You can boost your credit ranking by obtaining a short-term loan. The credit score algorithm favors such loans. New businesses do not have a credit history. No one wants to lend to a startup, and you may find yourself in a dilemma of where to begin from. Short-term loan lenders are ready to lend you money but at a higher interest rate than traditional ones. These loans are the best way to start building your credit score until you become eligible for funding approval from a bank or a financial institute. You can later borrow on low-interest rates once your credit score has improved.

7. Predictability of financial situation

The duration of a short-term business loan is a year or less. You can get an idea about the financial situation of your company in the next 6 to 12 months. Determine the best repayment term with your current income and expenditure.

9. Your business is stress-free

You do not have to worry about interest and principal payments. Borrow money for a short duration, pay it off and borrow again when you need it. These loans generally impose less burden on your business.

Final Thoughts

Short-term business loans are known for higher interest rates. However, when applying for a second or 1st mortgage, you can get them at a competitive interest rate. It is a convenient form of finance for businesses to meet unexpected expenses.

An Easy Guide To Short-Term Mortgages

A short-term mortgage loan is a type of funding alternative that is beneficial to overcome a temporary business cash flow shortage, they can be used for any business related purpose. It is a type of loan where you have to pay back the entire amount with interest by a given date, normally terms are 1 – 6 months. It is advantageous for start-up businesses and business owners who may not be eligible to obtain loans from a bank. It can effectively solve temporary and sudden cash flow issues.

Importance of short term Loans

But what is the importance of this loan type? Well, there are many reasons why people are opting for this funding option. The reasons are as follows:

  • If you do not have a regular income or have bad credit, the traditional lenders do not approve mainstream funding. In such circumstances, short term mortgages enable you to get the capital, and you can use the money for any business related purpose.
  • Thinking of expanding your business or purchasing some much needed equipment then this type of loan comes in handy as it allows you to obtain access to funds quickly and private funders can offer you a short-term term second mortgage.
  • As all fees and interest are capitalised and repaid at the end of the loan this allows you time to improve and grow your business without having to worry about meeting monthly interest commitments.

Different types of short term mortgages

Short-term mortgage loans have different types, some of which are as follows.

1. Short term fixed-rate mortgage

Taking a short term loan with a fixed rate provides peace of mind that your repayments will not change for the term of the loan.

2. Short term interest-only mortgages

A short-term interest-only mortgage will enable you to pay the interest amount each month. The advantage of this is that the entire loan amount will not remain due until the end of the term. This funding can be easily worked into your cash flow.

Advantages of short term mortgages

In today’s uncertain economic world, securing a short-term mortgage is an option several business owners are taking advantage of. It has numerous advantages that people might be unaware of. These include the following:

  • Flexibility

Loan terms for the short term mortgage loans are flexible and are designed to suit your needs. You can take a loan for as little as one month or structure the loan up to a 12 month term. The lenders meet your needs and ensure that you are taking a loan term that suits your business and exit strategy.

  • Business Friendly

Small business owners take up  short term mortgage loans as they are designed for business use and as there are no repayments in some circumstances this is beneficial to businesses who have lumpy or seasonal cashflow.

  • Savings

As the loans are only for a short period of time, there are savings in interest costs as the loans do not run for long terms such as 10 years. They are designed for a short term need and you require the ability to repay the loan in a short time frame.

How to acquire a short-term mortgage loan?

You can get the loan for your business if you meet the specific criteria of the lenders. The lenders will verify whether you can pay back the money or not, and they will also consider your exit strategy before they approve the funding. This type of funding is designed to be hassle free and easy to obtain.

Is short-term funding available for consumer purposes?

Short term funding is only for business use, the applicants must be running and operating a business, they are not designed for be used for any other purpose.

Wrapping It Up

Though this funding option is not suitable for everyone, it can be a lifesaver for businesses who need access to funds quickly, have equity in real estate and have a solid exit strategy for how the loan is going to be repaid.

Is It Possible To Apply For A Short Term Mortgage For Business Owners?

As a business owner you may have to make several crucial decisions whenever you wish to apply for a business loan. Many times, people go with what they know and take a loan without considering its pros and cons. They cannot determine whether the loan type will serve them better or not. As a business owner, you should remember that the loan term is just as crucial as the amount and the interest rate. Depending on the term required, you will find short and long-term mortgages. Though they both have similarities, you need to learn their distinct and beneficial characteristics.

If you research the market, you will notice that the interest rate of short-duration mortgages is higher than the long-term mortgages. Their structure is different from the long-term one as you need to repay the money quickly with a lump sum payment. Though the payment seems intimidating, a short-term loan is a viable option and offers several advantages.

The meaning of short-term mortgages

Any loans secured by real estate that has a less than 1 year loan term period are known as short-term mortgages. As this loan type gets repaid within a shorter time, it requires a higher monthly payment. However the interest rate can be higher than other types of loans. Unlike other mortgages, this option enables the borrowers to obtain funds quickly and exit out of the loan in a short period of time.

The working method of short-term mortgages

As a borrower, you will be expected to make monthly payments to cover the principal amount with interest, however some short-term mortgages can have the interest capitalised and repaid at the expiry of the loan. The long term mortgages act the same as the short-term mortgages with monthly payments, however the term is much longer up to 10 years in some cases.

Though you can afford long-term mortgages, the shorter ones will save your capital in many ways. When second mortgage loan lenders determine the rate, they may charge interest at a monthly rate however the loan term can be as short as one month due to its short-term nature. As a result the rate may be higher but you can obtain funding very quickly without the hassles that are associated with long term mortgages.

The benefits of short-term mortgages

Short-term mortgages have multiple benefits. So, while considering mortgage terms, potential business owners must consider their resources and requirements to set themselves up for success. The information below will help you determine why applying for a short-term mortgage is feasible for businesses.

  • Interest Rates

A short-term mortgage may cost less in the long run because you are only paying interest on the months the loan is outstanding, although the interest costs may seem high at the start, if you were repaying the loan over a much longer term you would end up paying substantially more and your cash flow could be affected. When considering a short-term mortgage you must always weigh up the total cost involved and do a cost benefit analysis, if the loan is going to help your business make money then the interest rate is irrelevant.

  • Offer Predictability

You can determine where your finances will be after some years or in the coming years. In that case, a long-term loan can make managing cash flow difficult due to its payment period. You need to repay the money continuously regardless of your economic situation.

But this will not happen in short-period loans. It offers predictability as you are required to pay the sum within a few months. If your business is struggling or has cashflow issues you can capitalise the costs of the loan and pay the funds back in a lump sum when your term expires.

  • Save Money

You can save a decent amount if you borrow a short-term mortgage. Since you do not have to pay the money with a higher interest rate for more years, you can have absolute peace of mind and concentrate on your business more. Hence, it is a beneficial option to earn more profits and save for the future.

  • Build Equity Quickly

If you are paying the principal loan amount quickly, you can create additional equity. You can expand your business, launch new products, consolidate debt, and many more if you borrow a short-term mortgage loan.

  • Improve Credit Score

Getting a short-term loan and paying it off on time is a beneficial option for boosting credit scores quickly. As you do not have to pay higher interest amounts for several years, you can improve the credit rating to help you to grow your firm business and assist you in getting a loan in the future.

  • Faster Process

Unlike banks and other loan types, short-term mortgages require less processing time. As a result, you will obtain the money much quicker, in as little as 24 hours in some cases.

Final Thoughts

Many people think that short-term mortgages are not beneficial as they have to pay a higher monthly payment or higher interest rates, however as long as taking the loan is going to help you make money in your business then the answer is an easy one to make. If you have any doubt and cannot determine what type is best for you, it is advisable to speak to a financial advisor before applying for any.

HomeSec Business Loans New Zealand

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​ HomeSec Business Finance Limited
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