As a small business owner, there is a chance that you will need a business loan to either expand or grow your business. There are many options out there to obtain the loan that works best for you. One of these options is traditional banks. Their application process is usually time-consuming and they have strict lending policies, so there is a chance that you might get rejected. But don’t worry, it’s not the end of the world.
You should try again. But you should be cautious about jumping from one bank or financial institution to another in order to get your loan approved. It actually does more harm than good, as an alternative, it’s best to understand why your loan got rejected in the first place and how you can make adjustments before trying again.
Here’s what you should do when a bank rejects your business loan application.
Have a talk with the bank
You need to find out exactly why your business loan application was rejected. It’s possible that the response you received wasn’t clear enough. Arrange to have a meeting with one of the loan agents and go over your application. This might be an uncomfortable conversation, but it’s good to understand exactly why your loan application was denied. You can then use that information to figure out your next steps.
Improve your next application
Now that you have an idea of reasons why your application was rejected, you can take steps to improve your chances of getting approved next time. Here are some things to consider:
- If the main reason was your business credit score, look through your credit report and figure out ways you can improve and build your score.
- Is the problem too much debt? Look into credit repair agencies. They will help you manage and reduce your business debts. Keep in mind that not all debt is bad debt.
- Have a savings account. It’s a good way of increasing your chances of getting a business loan. Build your savings before applying again
The bank wants to protect its funds and ensure that the funds are not given to people that are unable to pay them back. But if the bank knows for sure that they will receive their funds back, then you will have an easier time getting approved. In order to put the banks at ease (that their funds are safe), you can offer collateral security. This can be sold off to repay your debt in case you default.
Review your business plan and revise if necessary
Your business plan must be detailed and nicely laid out. Some people present terribly written business plans to the bank, under the assumption that they don’t matter. But they do! Business plans are an integral part of your application and are used in evaluating your business. You should ensure that your business plan is well thought out and well written. If you think you can’t write a good business plan on your own, hire an experienced writer to do it for you.
Reapply to another bank
Once you have tackled all of the above problems, you can reapply for a business loan. As mentioned in the beginning, banks usually have a more strict lending policy than others. If you find yourself dealing with a bank like that, then consider trying another bank that is more lenient.
Also, choose a lender that reports to the major credit bureaus. This is because as you start making on-time payments, those positive reports will help offset the negative ones that may currently exist on your report.
Consider alternative financing
If you have tried multiple banks and failed, don’t give up. Traditional banks are not your only choice, there are alternative lenders that offer multiple lending options. The majority of which have an easier and quicker application process. If you want to find the best funding option for your small business, speak to a broker or a business adviser. They can help you find one that is right for your business.
Always keep in mind that there is more than one way to obtain funding to move your business forward. The first thing to do after getting rejected by a bank is to contact them and arrange for an in-depth talk. Based on their response, revisit your application and make changes to it. If you are ever unsure about any part of the application form, consult with an adviser. And if you think that traditional banks are not the right option for you, explore alternative financing.