One of the most common reasons we see for loan declines is having excessive overdrafts. For obvious reasons, lenders are concerned when borrowers double dip and slip into the red. Now, one could question the reason for concern, especially on cash flow based unsecured loans, because after all, if enough money is going into the account to qualify for the loan, then dipping into the negative a few times a month should not be a major factor in the loan decision, yes? Well, not really.
Lenders perceive too many (and indeed often "too many" is just one) overdrafts as a fundamental inability to either manage your finances properly, generate enough income to cover your expenses, or finally, to exercise proper expense and business cost management.
Now, this is not to say that if you've overdrawn your account, it's a death knell for your loan. Lenders, after all, do understand that overdrafts can happen, especially during certain times of the year, quarter, or month. They realize that maintaining a positive balance at all times can be challenging for many small business owners - In particular when things like payroll, register receipts, vendor payments, and seasonality are factored in.
The good news is that the look-back on bank statements is typically just three months, so a good commercial lending partner will maintain a connection to you while those negative dips are dropping off and eventually guide you to your new loan.