For some business owners who run small businesses and apply for business funding, banks may reject their requests for business loans. There could be many reasons why. But in the meantime, it’s best to get a good cash manager to build up on how your business could get approved the next time you apply for a business loan. If you’ve ever been turned down for a small-business loan, it is time to review what happened and learn from it. Then, if you are considering another loan, you have a better chance of success because this experience is something you can improve upon.
It’s essential to understand banks are highly conservative when loaning money. Contrary to popular opinion, their lending criteria are different than many people imagine. Banking law doesn’t permit businesses to borrow without collateral, no matter how promising the operation may be. The next step is to rebuild your strategy after the first refusal has been absorbed. Here’s what you must do next.
Get Good Feedback From The Lender
Get in touch with the bank to determine the cause of your loan denial. Don’t be discouraged by an impersonal message or form letter. Instead, follow up with an individual. If you need to know who the loan manager is, then take some time to research it. Some circumstances make it prudent to disregard a letter, even if it seems helpful. However, please pay close attention to what it says about collateral or financial position issues.
When you reach a person, note all the details and ask customer service questions. Ask what would have made a difference and which credit bureaus the financial institution you’ve dealt with used to acquire data about your business. Find out what must be done next, if you’re eligible for an additional loan, and what changes you’ll have to make as your present loan is. It would help if you framed the talk so the conversation works well. Try not to react aggressively, but demonstrate a strong willingness to change and offer both sides of the conversation. You’re not interested in convincing the other party of your decision just by asking why they made a particular choice.
Determine Why the Lender Rejected Your Business Loan
Many reasons a bank will more than likely deny a business loan. One thing you need to be ready for is that the bank could reject the loan for one of these reasons. Common reasons why business loans have not been approved: Poor credit, poor ratios, incomplete finances, poor quality of cash flow, insufficient collateral, too much debt, and not enough credit history.
Let’s consider some of them since we’re dealing with incomplete financial records. Occasionally, an unsatisfactory financial situation, such as an unfinished balance sheet, allows one to submit a more comprehensive application form. But on the other hand, too much debt may enable you to chip away a bit of the underlying debt or identify errors in the financial institutions’ reports. Some of these issues are more challenging to address than you might imagine. For example, a lack of available credit may not be changeable quickly.
It may take digging to discover what caused a lender to reject your loan application. For example, I ran into a case where a loan manager blamed a denial on a lack of future monthly financial projections for the next half-decade. The lender could not deal with the prominent people because of their long-standing issues.
Deal With Your Credit Report
Is your less-than-perfect credit rating hindering your chances of obtaining a loan? Make the time to review your credit report to ensure everything is accurate, which will help you identify actions to take to improve your credit rating. Considering how you manage your credit also gives you helpful insight into how best to act moving forward. Obtain conventional copies of your consumer credit reports from Equifax, Experian, and TransUnion for free a year by way of AnnualCreditReport.com. You can also take a copy of your credit report used in the loan application from the specific lender used through this site.
Check your credit history to locate errors. Each credit report company has a specific process for adding appropriate information and fixing mistakes. However, you will often find severe errors that you can resolve quickly. You’ll be unable to enhance your credit rating if you don’t discover significant errors. Focus on safeguarding your on-time payments, decreasing your credit utilisation, and establishing a good relationship between your debt types. For example, you may seek capital investment rather than debt and use it to pay down your debt or renegotiate terms with your vendors.
Change Lenders and Loan Tactics
If you question your bank’s rejection of your loan, you can consider alternative lenders. Banks compete for business customers, and sometimes you may wish to consider an alternative lender in such instances. When approaching the following bankers, be sure that you set the stage correctly. Be transparent and frank when discussing your situation. The bankers will then talk among themselves, so provide candour.
Venture debt is also an option you could explore. Where you borrow money from angel investors or venture capitalists who are willing to lend money to startups for interest and, most often, for an equity kicker. Investors are subject to banking laws because they are not spending depositors’ money, so they are more flexible. If you own a venture capital loan and are late on payments, interest and ownership will likely increase due to it. However, the percentage of your business and control of the company will stay with the same people after a venture capital loan is paid off. For instance, even if you have to pay back the loan, the investors who lent the money will end up with one or two per cent of the business as shareholders.
Explore Other Financing Options
It may be the case that the bank you approached for funding won’t offer it. For example, your borrowing history needs to be higher, or you need more sales track records to demonstrate your business’s profitability. If that’s the case, it may be worth looking into alternative financing options.
In conclusion, if you are rejected for a loan, you must remember that there are many other loans out there that you may be eligible for. Stay encouraged and keep looking for the best loan options that fit your needs. Remember that everyone’s situation is different, so don’t let one rejection stand in your way of finding the perfect loan.
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