As a business owner, you have likely experienced lots of rejection already. You are used to hearing “no,” but you would not be where you are at present in case you were not persistent in your undertakings. Simply as you have overcome rejection from potential customers, investors, vendors, and more, you can apply that same flexibility to overcoming a rejection from a lender. To get the best result out of your future loan applications, let’s take a look at some of the main reasons your preliminary small business loan may have been rejected:
Picking Wrong Lender
Since the great recession, traditional lenders have constricted their lending criteria, making it more difficult for small businesses to get approved. Fortunately, there are some alternative lending sources to get business funding.
Check out online lenders and the different loan programs they offer. The alternative lenders have less-restricted lending criteria, so the borrowers have a high possibility of getting approved for a small business loan. Online lenders also require less paperwork, so they may be the solution that you are looking for to get cash immediately.
For your next time around, take your time researching all the available business funding types and apply for the one that would best suit you and your business requirements. In case the bank has rejected your loan request, try out online lenders.
Have Bad Credit Issues
Lenders highly depend on your business and personal credit history when determining your loan eligibility. In case a low credit score is the reason your application was rejected, then improving it could turn a rejection into an acceptance.
Improving either of these scores will be no overnight fix; however there are a few ways to give them a quick boost. Don’t forget to check your credit reviews frequently with all essential credit reporting agencies—and make sure there are no mistakes on your credit report. Errors are surprisingly common in credit reporting, and that they can be one of the reasons you have a low score to start with. If you can find out and remove any errors, you’ll see a substantial increase in your score.
Raising your credit limit and paying down your balances will also help. But most importantly, make sure each of your bills is paid on time. Delinquent payments will not reflect well on your credit score and could substantially harm your odds of being approved for a small business loan by way of any type of lender.
Have Little To No Cash Flow
Despite of excellent credit, in case your business has little to no cash flow, your lender will be uncertain to provide a loan. Lenders need to see that you have adequate cash to cover the overall business expenses, monthly loan payments, and now have a bit available. In case your margin is too tight, it could be a problem for lenders because it leaves no room for any unexpected expenses that generally tend to occur in business.
You have to increase your cash flow to turn a rejection into acceptance. The good way to do this is to collect your receivables quickly, and slow down your payables. You may also increase your cash flow with the help of offering discounts to early payers, or by requiring down payments from new customers. Another thing to consider is the financials that represent your cash flow. For instance, there are many lenders that will ask to look your business bank statements.
Have No Or Inadequate Business Plan
Without having a well-organized business plan, your lenders will not be confident in you. They need to check how you are using the borrowed amount and your revenue projections. To turn a rejection into an acceptance, you need a business plan. Your business plan should give an explanation of the resources you will need to achieve your preferred business objectives and the related costs. The planned uses of the business loan should be well thought out and researched. It should additionally explain how your business generates revenue and how you plan to pay back the loan.
Have Insufficient Collateral
Lenders need to protect themselves, so in order to secure a small business loan; you’ll be asked to put up some collateral. Placing collateral can secure the lender’s amount in case unfortunately your business is not as effective as you expected. Lenders will not lend you cash in case they have no guarantee of repayment on their loan. In case your loan program requires collateral, you may need to offer assets unrelated to your business, so the lender can cover the loan payments.