Many very successful business owners have experienced a small business loan application rejection. In fact, some statistics suggest that less than 50 percent of business owners are able to get approved for a small business loan. How well you’re able to bounce back from rejection today will greatly impact whether or not you’ll be successful tomorrow. Here are three suggestions that will help you regroup, reapply, and reap the rewards of a successful loan application:
1. Find Out Why: Like most people, your lender will likely want to avoid anything that feels like confrontation, but you need to press him or her to explain why your application was rejected. Was it your time in business, your personal credit score, or the industry you’re in? Depending upon the answers, your application may have been doomed from the start or you may be able to address the issue, or issues, in a future application.
For example, traditional lenders like banks and credit unions may look at your small business differently than some of the new breed of online lenders, so if you get turned away by the bank because you have a less-than-perfect personal credit score, you may find success with another lender—provided other factors are in place like strong revenues and good cash flow. If you don’t know why you were rejected, it’s more difficult to figure out what to do next.
2. Identify the Next Steps: When you boil it down, lenders really want to know that you can repay a loan and that you will repay a loan. They’re looking for borrowers that are likely to make timely payments, which is why they ask questions about your credit score, your revenue, your time in business—and even your industry.
For example, if your application was rejected because the industry you’re in is unfamiliar to the lender or an industry they consider risky, a good next step would be to see if the trade association you likely participate with, or other associates in your industry, can recommend a lender that works with businesses in your space. Or, if your personal credit score is too low or your business credit profile is sub par, you can focus your efforts on strengthening your personal or business credit profiles to improve the odds of loan approval in the future.
Depending on the identified next steps, it could be a quick fix and back to another lender or it could require some time to address a lender’s concerns. Either way, you need to identify what to do next.
3. Remain Confident and Realistic: Many reasons a lender might give for rejecting your loan application can be addressed the next time. With that said, some issues require more time to address than others. A poor business credit profile, for example, can’t be addressed overnight. If you’ve never used credit for your business or have always defaulted to your personal credit card for business needs, start by establishing one or two business credit accounts.
The same vendors you pay cash to now might be willing to allow you to pay your invoices on 30-day terms. If so, make sure they report to at least one of the three major business credit bureaus (Dunn & Bradstreet, Experian, and Equifax) so your good payment history with them helps build a strong business credit profile. You can also establish credit with companies like Home Depot or Staples that provide many supplies used by small businesses—and it helps that they report your transaction history to the business credit bureaus.
But be aware, building or strengthening your credit profile will take time. There are no quick fixes.
On the other hand, addressing a rejection might be as simple as finding a lender who works with other businesses in your industry—which likely won’t take that long. If you’re search has been primarily with the local banks in your community, there are lots of options online that might also prove to be good for your situation.
Be confident in your ability to find a small business loan that will fit your needs, but be realistic about how quickly you can address the concerns shared by your lender. It’s easy to throw in the towel after you’ve visited a few lenders only to be rejected.
Accessing the cash you need to fund working capital or fuel growth is one of the biggest challenges faced by many small business owners and usually includes a rejection or two. How well you’re able to bounce back by addressing problem areas in your application to improve how your business presents to a potential lender will increase your odds of success the next time.