5 Reasons Your Business Loan Application Was Rejected
At Fora Financial, we know that many small business owners need additional funds to sustain their growing business operations. Whether your business requires extra cash flow or could use funds for something specific like expanding your space or purchasing new equipment, small business funding can help your business succeed.
Don’t let the rejection get you down, and instead get ahead by learning how you can receive funding the next time you apply. If your application for a business loan was denied, check out these three reasons that could’ve scared away the lender.
Why Your Business Loan Application Was Declined (And What to Do Next):
1. You Don’t Meet Their Time in Business Requirement, So You Should Wait to Apply Again
Most likely, waiting until your business has been operational for a longer period isn’t something that you want to do, especially if you have immediate financing needs.
However, many lenders require that the companies they provide funding to be in business for a certain length of time. Luckily, this is an easy problem to fix; simply wait until your business has been up and running for the required amount of time and re-apply.
We also suggest asking the lender if their time in business requirement was the only reason that your business wasn’t funded. If this was why your small business loan was rejected, you’ll be receiving a term loan or cash advance in no time.
2. You Have Negative Days or Are Short on Cash Flow, So You Should Monitor Your Business’s Finances
The biggest warning sign for a business lender is seeing that your business bank account has numerous negative days each month. A negative day refers to when your business bank account is overdrawn, resulting in a negative amount of money in the account.
Does your business have more than a couple negative days during each month? The lender was probably alarmed by this, since you wouldn’t have the money in your account to pay them back, which could create problems for you both.
If your business loan application was denied, try to improve this aspect of your company’s finances before re-applying. To do this, try to keep a certain amount of money in your bank account as a cushion to avoid this in the future.
Of course, running a business comes with many financial responsibilities. It can be challenging to avoid negative days if you’re over-burdened with bills and other recurring costs. Due to this, we suggest re-evaluating your business plan and budget.
Prior to applying again, determine if you can cut costs from your business’s budget. That way, you can be in a financially stable place that will increase your chances of getting approved by an online lender.
3. Your Business Has Low Monthly Sales, So You Should Increase Them
Some lenders will want to ensure that your business meets a minimum gross sales requirement. Unfortunately, if your business doesn’t produce the required amount, this could be why your business loan was rejected. Make it a goal to reach the lender’s gross sales amount and re-apply once you’ve succeeded.
4. You Have Poor Credit, So You Should Improve Your Personal and Business Credit Scores
If your financing application was rejected due to the alternative lender’s credit requirement, you’ll need to focus on improving your scores.
As you may already know, most lenders will consider your business credit history when evaluating your loan application. If you have a history of late payments or significant debt, this will make you an unattractive customer. To improve your credit score, try following these tips:
- Pay bills in-full and on-time
- Focus on paying off debt prior to applying for additional financing
- Access free credit reports and dispute any errors
5. You Didn’t Qualify for the Option You Wanted, So You Should Contact the Lender to Discuss Alternatives
If you’re still unsure if you will get approved for a business loan, we suggest contacting your preferred lender to discuss.
If your credit score or monthly sales aren’t strong, but you meet their minimum requirements, they may still be able to provide you with funding. However, you may only be approved for a smaller loan amount, higher interest rate, or less flexible terms. However, if you have an immediate funding need, this could still be a viable solution.
If you still can’t qualify for traditional funding sources, such as a business loan or line of credit, you may need to seek an SBA loan instead. This funding is meant for businesses that can’t get approved for traditional financing and is partially backed by the Small Business Administration.
Conclusion: Sometimes, Qualifying for a Small Business Loan Takes Time
Just because you received a denied business loan application the first time you applied doesn’t mean you won’t receive financing in the future. Reach out to the lending company you applied with and find out if they can give you any insight on what to do going forward.
If you can identify why your business loan was denied, then you can work on improving your business and re-applying. In the meantime, see if you can get financial support from family and friends until you get approval from a lender.
Editor’s Note: This post was updated for accuracy and comprehensiveness in May 2021.
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.