At some point on your journey, you will need to get a business loan and apply for financing. However, it is no secret that applying for financing can be difficult and getting denied is common. It is disappointing when you find that your loan application has been denied but there are things you can do to ensure that your next business loan application results in getting approved.
Ask Your Lender Why Your Application Was Declined
The first thing that you can do is simply ask your lender why you were declined. They can provide you with an explanation that has the information you need to be aware that you can fix before you start to apply for funding again.
Some common reasons of why applications can be denied are that they were seeking more collateral, your business has been operating for a short amount of time, or your business plan is not defined enough for the lender to know what the funds will be used for.
Other reasons applications get rejected:
- High-risk industry
- Too much debt
- Weak business performance
- Short credit history
- Wrong type of financing
Improve Your Credit Score
A major component when applying for a business loan is how creditworthy the borrower is. Both your business and personal credit scores will be considered in the loan application process. Personal FICO scores range from 300 to 850 and business credit scores range from 0 to 100.
If you think your credit score is lower than it should be, check your credit report and make sure it is accurate. You can get your credit report from Experian, Equifax, and TransUnion. Reach out to them immediately if you find there are errors on your credit report. You do not want any errors because this will impact your ability to get approved for a loan.
One easy way to improve your business score is by applying for a business credit card in the name of the business. You can also ask vendors, creditors, and even the landlord of your office space or property to report your payment history to the business credit reporting agencies.
Consider Alternative Loans
Each lender has different standards and requirements so you need to find one who will be more receptive. There are numerous online lenders who are more willing to work with startups or small businesses than traditional lenders. You may even find better loans that are suit your business the best.
Apply for a Different Financing Option
You may struggle getting a bank loan because banks favor capital-intensive businesses and if your business is not, then you are better off trying different financing options. Other alternative loans that you should consider are credit cards, crowdfunding, factoring, and grants. These different types of loans might be better for your business’s needs.
Take a Break from Applying for Financing
Sometimes, taking a break from applying is the best thing you can do for a certain period of time. This allows you to work on your business and make some changes so when you apply you can get approved.
The Bottom Line
If your application for a business loan was declined it is not the end of the world. You can try obtaining a different loan with the same lender or you can seek alternative lenders. Even asking friends and family for some funds is a good option too. Try to improve your chances of getting approved in the future by building your cred it and working on improving your business plan. This will ensure you get approved the next time you decide to apply for financing.