What to Do When Your Business Loan Application is Declined

Applying for business financing is time consuming, but it is necessary to keep your business growing and running smoothly. If your application for a business loan was denied, it can be disappointing. However, don’t give up just yet because it’s still possible to get approved for a business loan in the future.

In this article, we will explain what you can do if your business loan application was declined. Once you take these steps, you might be able to qualify for the financing your business requires.

7 Steps to Take If Your Business Loan Application Was Declined

Find out why you were declined

If your business loan application was rejected, it doesn’t mean you can’t ever apply again. Many business owners apply for a loan only to get declined and have to apply again in the future.

Before you start the loan process, you should ask the lender why your application was denied. Common reasons for being declined include the following:

• Collateral issues: if you can’t submit collateral, your application can be denied.
• Time in business: some lenders aren’t willing to extending credit to businesses that have been in operation for less than two years.
• Debt to income ratio: if your debt-to-income ratio is high, you will need to pay down your debt before applying for a loan. Lenders don’t want to lend to businesses with low cash flow.
• Poor credit: if you have a low credit score, you might not have met the lenders requirements, so you will get declined.

Once you meet the requirements, wait until you meet the standards before starting the loan application process. That way you can increase the chance that your loan application will be approved.

Improve you credit scores

Lenders evaluate personal and business credit scores when deciding to grant a loan or not. They do this so they can get a clearer picture of your finances.

Make sure you are aware of your credit scores because many people are not. Improve your score by applying for credit cards in the firm’s name and avoid funding your business through personal loans.

Find another lender

Find a lender who will be more receptive if your loan application was declined by a bank. There are countless online lenders who are more willing to work with startups or small businesses than traditional lending institutions.

Apply for different financing option

If your business is struggling with working capital, a term loan may not be your best bet. You may find the lender is willing to provide you with a smaller line of revolving credit instead. Lines of credit are generally easier to qualify for than term loans given their short-term nature.

SBA Loans

The SBA also has several programs for funding. However, owners should note that business credit scores still matter. Typically, the SBA requires applicants to have least a 140 out of 300 score to qualify for a 7(A) loan.

Angel Investors

If you’re not able to get funding with the options above, try angel investors or taking loans from friends and family. They are more likely to trust you and could be willing to invest in your business, even if financial institutions aren’t.

The Bottom Line

A declined business loan application is not the end of the world. If your application was declined, you can try obtaining a different loan product from the same lender. Or, you could seek alternative lenders, such as outside investors or online banks.