6 Steps to Take if Your Business Loan Application was Declined
What You Should Do if Your Business Loan Application Was Declined:
1. Determine Why You Were Denied
A rejected application doesn’t mean you can never apply again. Review the requirements of the loan you applied for and ask the lender why your application was denied. Perhaps the bank wanted to see more collateral, or is not willing to extend credit to businesses with less than two years of operating history. Waiting until you meet all requirements can increase the chance that your loan will be approved next time.
2. Improve Your Credit Score
Do you know what your business credit score is? In addition to personal FICO scores, lenders also evaluate business credit history when deciding whether to grant a loan. Studies show that many business owners are unfamiliar with their scores. Just like a personal FICO score, your business credit score rates your firm’s creditworthiness based on factors like payment history. Improve it by applying for credit cards in the firm’s name, and working with vendors who report payments. Avoid funding your business through personal credit lines, which do not contribute to your business credit history.
3. Find Another Lender
If your loan application was rejected by a bank, find a lender who will be more receptive. There are countless online lenders who are more willing to work with startups or small businesses than traditional lending institutions. They may even offer loan products better suited to your business’s situation.
4. Apply for a Different Product
If your business is struggling with working capital, a term loan may not be your best bet. You may find the lender is more willing to extend your company a smaller line of revolving credit, rather than a large lump sum. Lines of credit are generally easier to qualify for than term loans given their short-term nature. Other loan products may also be easier to obtain. For example, you could leverage your firm’s future credit card receipts to secure a merchant cash advance.
5. Get an SBA Loan
If you can prove that you have exhausted all other financing options, you may be eligible for help from the government. The U.S. Small Business Association has several programs to help entrepreneurs obtain funding through commercial banks by acting as a guarantor on SBA loans.
However, owners should note that business credit scores still matter when seeking a SBA-backed loan. You typically require at least a 140 out of 300 to qualify for a 7(A).
6. Find Another Way
If you’re unable to obtain funding from a financial institution, it may be time to start looking for angels. Outside cash do not necessarily come from institutional investors, either. Consider asking for loans from wealthy friends or family. They are more likely to trust you, and be willing to invest in a concept that lenders or other financial backers are reluctant to pursue.
A rejected loan application isn’t a death sentence. Entrepreneurs denied a business loan can try obtaining a different loan products from the same lender, or seek alternative lenders, such as outside investors, or online banks. Small business owners can also improve their chances of getting approved in future by working on their business credit scores and operating history.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.