Was your business loan denied? This can be a horrible feeling, especially when you’re working so hard on growing your business and need additional financing – but don’t know where to turn. Depending on what type of business loan you applied for, you might have options even though your business loan was denied.
What type of business loan did you apply for?
If you’re like most people, you either went straight to your bank, or tried applying for an SBA loan. Many traditional lenders who offer SBA loans and traditional bank term loans often reject you for one of the following reasons:
- You haven’t been in business long enough
- You don’t have a great credit score
- Your business credit is bad
The reasons go on and on.
Bottom line, they look for any reason possible.
In the case of SBA loans, they look at the P&L in addition to many other factors in order to make sure you’re a good fit for their lending programs. Most business owners do not qualify for an SBA loan or bank loan.
Invoice Factoring When Business Loan Denied
This isn’t technically a loan. When you engage in invoice factoring, you’re trading your invoice/future revenue, in exchange for an immediate cash value of the proceeds. It means you get paid immediately, but at a discounted rate – typically 80-90%. The factoring company then collects the remaining balance from the person who you issued the invoice to. It’s not uncommon for invoice factoring to be done in 24-48 hours.
Merchant Cash Advance When Business Loan Denied
This is the fastest, and most expensive way of borrowing money. Your credit isn’t a factor. What matters is how much money your business takes in, and how profitable your business is. Often, lenders will look at your profitability, your P&L, and how well your business is running. There are some high risk industries that lenders will not touch, but besides that, getting funding isn’t too difficult.
Hybrid Term Loans When Business Loan Denied
If you’re like most borrowers, you expect to get funding at an APR of 3-9%. This is standard for bank loans. But for one reason or another you don’t qualify. There are other lenders out there who offer hybrid term loans. They are similar to bank loans, but not as good. Instead of a 5 year term, they’ll offer a 12-24 month term. Instead of 5-10% APR, they’ll offer it at 10-20% APR. Typically you still need good credit to qualify, but often it’s easier than a traditional bank loan.
Private Money Loans When Business Loan Denied
If you have real estate, you can use it as collateral and get a hard money loan against the value of the property. Many lenders are happy to offer you 6-8% APR loans, against the value of your property in order to give you the funds you need. Many hard money loans are provided with no origination fees, with terms of 1-2 years. It’s not uncommon for business owners to use hard money loans to finance their business.
In Summary When Business Loan Denied
If your business loan was denied – it’s not the end of the world. There are SO MANY other funding options. If you’re ready to get started, give us the chance to help you. We have many competitive programs that can help you even if your business loan was denied.
What to do after being rejected for a business loan
If you’re ready to move past your rejection and be better positioned for a small business loan, keep reading! Getting denied for a business loan can feel like a personal rejection. If you can work your way through all of our recommendations, it should improve your chances of getting approved in the future.
Ask the lender why you were rejected
Lenders don’t like taking risks. They want to reduce risk on the loans they make. Each lender has their own requirements, and algorithm. If you didn’t qualify for a loan, there is a reason why. The lender can tell you why. It’s not uncommon for some lenders to reject you for a reason, and then other lenders to ignore that same issue.
If you’re rejected for any type of loan, whether it’s a business loan or credit card application, you’ll get a notification detailing which factor contributed to the rejection. For example, the rejection letter might tell your credit score was poor, or you didn’t have adequate time in business. Whatever the reason is, you need to understand why your application was rejected.
When you apply for a loan, or credit score, your personal credit score is super important. It has a very big impact on your chances of getting approved for a small business loan. If you’re a sole prop, your personal credit score can play a huge role in whether you get a small business loan or not. If you get denied, your rejection letter might mention your score. If it seems lower than it should be, you can ask for a copy of your credit report and make sure its accurate. Each lender might look at a different credit report agency, so it’s important to check your report and score with all three bureaus.
If you’re applying for a business loan in the name of your business, you might have a hard time getting approved – no matter how great your credit score is. This is because your business has its own credit report. If you just start a new company, your credit report is nonexistent. This makes it harder to get a small business loan. If you have no business credit profile make sure to check the data with all major business credit bureaus.
Make sure your documents were correct
It’s important you provide the proper, and correct, documents to your lender otherwise you’ll get denied. If you’ve been rejected, one of the first things you should do is review the documents you submitted with your application for a small business loan. Look at the financial picture the documents told. For example, if your tax return shows the business has a loss every year, it might be hard to qualify for a small business loan! For example, the SBA wants 3 years of financial statements before it’ll consider your loan application. Other lenders want to see things like strong cash flow, strong earnings, and more.
If you have incomplete or missing documentation, it’s important you keep it all in order for your next loan application. If the loan was rejected because you didn’t meet the standards of the lender, you need to know that NOT ALL lenders look at the same thing.
Look into other sources of funding
Small business loans don’t have to be bank loans or SBA loans. There are many alternative funding sources like invoice factoring, lines of credit, hard money loans, merchant cash advances, and more. If you were denied for a small business loan, and don’t feel the SBA/business loan is an option – then we recommend you speak to us. Lending standards and guidelines vary from institution to institution.
It’s important not to give up just because you were rejected for a small business loan. Usually being rejected means you have plenty of things to work on, and improve. Take it as a learning experience. Analyze what led to your objection, and come up with a plan to overcome those obstacles.
No one wants to accept they’ve been denied for a small business loan. Yet this is a common occurrence. Banks generally only lend money to businesses that have a high probability of being repaid. Honestly evaluate your business and see what factors might’ve caused the lender to decide you won’t be able to repay the loan.