Declined Business Loan Application? Applying for business funding can take a long time, but it’s often important to keep the company going.
It can be very discouraging if your request for a business loan is turned down. Don’t worry, though; being approved for a business loan is still possible in the future.
We’ll go into what you can do if your small business loan application is rejected in this article. Following these measures, you will be able to obtain the funding your company needs.
Steps To Take If Your Business loan Application was declined:
- Determine Why Your Loan Application Was Denied
If you were turned down for a business loan, it doesn’t mean you can’t apply for one in the future. Many entrepreneurs apply for a loan only to be turned down and have to reapply later.
Even so, before resuming the loan application process, you can inquire as to why your application was rejected. The following are some of the most likely causes for a business loan application being denied:
In certain situations, a secured loan would require the borrower to have collateral. It’s possible that your application was turned down because you couldn’t afford to apply collateral.
Time in business:
Some creditors won’t offer credit to a company that hasn’t been in operation for more than two years.
Debt to income ratio:
If your company’s debt-to-income ratio is high, you will need to pay down debt before applying for a loan. Owing to unpaid debt, lenders are also unable to lend to companies with low cash flow.
If you have a poor credit score, you might not have met the lender’s criteria, which is why your application was rejected. Check your credit report before applying again to ensure that you meet the credit requirements.
Hopefully, after consulting with your creditor, you’ll be able to completely comprehend why your application was denied.
Wait until you have a full understanding of the lender’s conditions before resuming the loan application process. That way, your loan application would have a better chance of being accepted.
- Improve Your Credit Scores
Lenders consider company credit history in addition to personal credit scores when determining whether or not to grant a loan. They do this so they can get a better picture of your finances by checking your personal and company credit ratings.
Most small business owners, according to studies, are unaware of their ratings. Your business credit score, like your personal FICO score, assesses your company’s creditworthiness based on factors such as payment history. Register for credit cards under the company’s name and collaborate with suppliers who record payments to improve it. Personal loans, which do not add to your business credit history, should not be used to finance your company.
- Find Another Financing Lender
Find a lender who would be more receptive if your loan application was denied by a bank. There are a slew of online lenders who are more likely than conventional lenders to partner with entrepreneurs and small businesses. They might also have loan items that are best tailored to your company’s needs.
- Apply for a Different Financing Option
If your company is in need of working capital, a term loan might not be the best option. Alternatively, you may find that the lender is able to provide you with a smaller revolving credit line. Because of their short-term existence, lines of credit are usually easier to apply for than term loans.
Some loan options may be more available. For example, you might get a merchant cash advance by using your company’s future credit card receipts.
- Consider an SBA Loan
You could be eligible for federal assistance if you can demonstrate that you have exhausted all other financial options. The Small Business Administration (SBA) offers many financing options for entrepreneurs. They collaborate with commercial banks, which serve as guarantors for SBA loans.
When applying for an SBA-backed loan, however, owners should keep in mind that their company’s credit score is still important. To apply for a 7(A) loan, borrowers must usually have a score of at least 140 out of 300.
- Find Another Way
If you haven’t been able to secure financing from a reputable financial institution, it’s time to search for angel investors. Outside funds aren’t necessarily provided by banks or other financial institutions. Consider borrowing money from rich friends or family members. Even if financial institutions aren’t, they are more likely to trust you and will be willing to invest in your business.
- Take a Break from Applying
The only thing you can do in certain cases is to wait a certain amount of time before applying again. If you were turned down because of your work experience, this will enable you to fulfill this requirement the next time. Alternatively, if your monthly sales were too poor or your credit score was too low, you might concentrate on raising these figures.
Of course, we recognize that your financial requirements should be urgent. If you’re having trouble qualifying, however, taking a break from applying to focus on improving your company could be the best option.
Conclusion: Don’t Give Up If Your Business Loan Application Was Rejected.
Mind that a business loan application rejection isn’t the end of the world. If your business loan application was turned down, you can try again with the same lender for a different loan product. Alternative lenders, such as outside investors or online banks, are another choice.
Finally, by enhancing your credit and your business plan, you will increase your chances of being accepted. You should be assured that you will be able to obtain funding in the future if you continue to expand your company and operate it responsibly.