5 Steps to Take After Being Denied a Small Business Loan
Entrepreneurs know that the path to success is not a straight line. Whether you like it or not, you’re going to face major roadblocks that can make or break your business – like getting rejected for a small business loan.
Let’s face it; it can be challenging to qualify for a loan, especially for new businesses. Even if you did your research, created a business plan, and submitted the necessary documents, approval is not guaranteed.
If you’ve been denied a small business loan, don’t lose heart! Many entrepreneurs don’t qualify for financing on their first application but successfully secure one on their second try. There are certain steps you can take to improve your chances of approval.
1. Know Why You Got Denied
The first step is knowing why you got rejected in the first place. Once lenders officially deny your loan, you can’t do anything to change their minds. However, some lenders are willing to tell you the reason behind the rejection. You can request this information from the lending company and they will send you a letter of explanation detailing the reason for your denial.
If you’re seeking to reapply for a loan, you must understand why your application was turned down. By requesting a letter of explanation, you’ll be able to address the issues before you reapply.
2. Correct Your Errors
There can be different reasons why your lender rejected your application. Maybe you weren’t able to meet the minimum income requirement, or perhaps your credit score is too low. If the reason can be corrected, be sure to take proactive steps in order to correct it.
- Credit Score: If your credit score is too low, there are steps you can take to repair it, like paying your bills on time, checking your credit report for mistakes, etc.
- Not Enough Time Business: You might want to wait it out before applying for a business loan. But if you need immediate funding, there are other types of financing options you can check out, like invoice financing, merchant cash advance, equipment financing, etc.
- Not Enough Collateral: You can apply for unsecured business loans
- Insufficient Cash Flow: Poor cash flow can be a major hurdle when applying for a small business loan. You can improve your cash flow by expanding your payment options, get paid faster, have a business line of credit on hand, and more.
- Incomplete Paperwork: Double check your documents and get your paperwork in order before reapplying
3. Evaluate Your Personal and Business Credit Rating
Both personal and business credit standing are major factors lenders consider when evaluating your application. If you received a rejection letter from your lender, it might include your current credit score. If you think your credit score is lower than it should be, you can get a copy of your credit report to ensure that everything is accurate.
On the other hand, your business credit report is different from your personal credit. Even if your personal credit is perfect, you might still have trouble qualifying for a loan if your business credit is low or nonexistent (for new businesses).
4. Check Out Different Loan Programs
A rejection from one lender doesn’t mean a rejection from all. Loan standards and requirements vary from lender to lender. Furthermore, different loan products have different terms and amounts. It’s important to expand your options and look for other types of loans that you can qualify for. Ask your business financial adviser to help you find the best loan for your business based on your goals and needs.
5. Carefully Reapply for a Small Business Loan
Did you know that many small business applications got rejected simply because they missed a few requirements? This goes to show that a simple mistake can overthrow your entire application, wasting precious time, money, and effort.
When you reapply for a business loan, make sure to check all your documents, verify the information written, and double-check your entire application. If possible, you can ask other people to recheck your application before you submit it.
Being denied a small business loan is a part of your entrepreneurial journey. Thousands of business owners experience rejection daily, especially during their first application. But keep in mind that rejection shouldn’t discourage you from pursuing your goals and dreams.
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Business loan rejections are a common occurrence among small businesses, especially start-ups. Banks, most especially, are hard to qualify for because of their extensive requirements. Nevertheless, this shouldn’t stop you from pursuing much-needed funding for your business. A small business loan can do great things for your growing company. So, if you’re denied a business loan, be sure to know the reasons why and work hard to correct it. This way, when you reapply in the future, you’ll have a higher chance of getting approved.