What You Need to Do When You're Loans is Rejected

If you have applied for a loan and your application was denied, you might feel upset or confused as to why. Lenders deny applications all the time, so it is something to not take so personally. There are many factors that go into denying an application but there are ways to improve your chances to avoid from that happening again the next time you apply.

Find Out Exactly What Happened

If you have been rejected reach out to the lender and ask for details. Knowing the specific reasons as to why it was rejected can help you improve your application in the future when you apply. Most lenders are required to send you an explanation letter when they deny your request.

Check Your Credit

Learn everything you can about your business credit and familiarize yourself with your business credit report. If you see any negative items or red flags, the lenders will see this and decide that it is too risky to approve you. Some negative items that can cause denial of your application include:


  • Foreclosure
  • Collection accounts
  • Delinquent payments
  • High credit card balances
  • Too many credit inquiries
  • Lack of credit history

When you apply for a loan, make sure you meet the lenders requirements in terms of your credit score. Make sure to meet the lender’s minimum requirement and if you do not, shop around for loans that are targeted to your credit range.


Lenders will consider your income when reviewing your application. If it does not meet their minimum requirement you will not get an approval. Another reason you can be denied is that your debt-to-income ratio is too high. To calculate your ratio, you divide your monthly debt payments by your monthly gross income. If your ratio is high, then it tells the lender you will have problems making your payments. A high ratio is anything over 40% but varies depending on the lender. If this is your case, you can lower your ratio by paying off your debts.

Limit Your Applications

When applying for a loan, your credit report is affected from each application you submit. If you submit too many then it can affect your credit score negatively and result in your application being denied.

Purpose of the Loan

Make sure to know the purpose of the loan and what you need to use it for. There are several different loans that are have several purposes, so it is important you are applying to the right one. If you are looking for long-term financing, make sure you are not applying to short-term financing loans.

Getting Denied Does Not Hurt Your Credit

When a lender looks at a consumer’s credit report, an inquiry is posted on the consumer’s credit report. There are two types of credit inquires which is soft and hard. Lenders will run a hard credit inquiry when you apply for credit. A hard inquiry will affect your credit score by taking away a few points.

How to Build Your Credit Before Applying Again

To get the best rates and terms, having a good credit score is going to help you in the long term. Take the following steps to build good credit habits.

  • Make timely monthly payments: payments that are late show up on your credit report so make sure to make your payments on time.
  • Keep your credit card balances low: if you have a high balance, pay them down as soon as you can and keep them as low as possible.
  • Avoid too many hard inquiries: when your application gets denied, it can be tempting to begin applying again until you get approved. Note that any time a lender pulls a hard credit, it will show up on your report and having too many in a short amount of time can be a red flag.

The Bottom Line

Although there is no guarantee that your small business loan will be approved, there are different ways to make sure you can improve your chances for the next time you apply. Also, remember to compare your loan options and find lenders that you may be more eligible for.