The Bank Rejected Your Loan Application, Now What?

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So you finally got the news — the bank rejected your loan application. You thought you had dotted your Is, crossed your Ts and explained your case of why you desperately need the cash for that equipment upgrade to get your business moving again. You’re left feeling confused and unsure of why you don’t qualify for a loan.

Pause and take a few deep breaths. If this is the first time you tried to qualify for a loan, perhaps there are a few ways you can improve your chances next time around. If you’ve been turned down for a loan before, maybe it’s time you start seeking financing alternatives. Either way, rest assured, there are options for getting the money you need.

Reflect on Your Experience

Determining why you may have been rejected is a good place to start to increase your odds of approval in the future. Ask yourself these questions about your experience:

  • Did I dress the part and sound like I knew what I was talking about, or did I show up in my work gear and balk when the banker asked me questions?
  • Did I stress that I wanted to build a long-term relationship, or just say that I was shopping for the lowest rates?
  • Did I provide my financial statements and an executive summary, or did I just explain my need?

If you responded yes to the second option for each question, you must prepare before you rinse and repeat by using a more organized approach. You could put together a brief summary, called an executive summary, on your company. The executive summary is generally three to five pages long and includes an overview of your business, market and management team. It also includes a growth plan, how much you need and why, and a list of your proposed sources and uses of funds. Whether you’re planning to seek another bank loan, or any other type of loan, giving your business the spotlight it deserves can expand your financing options in the future.

If Credit History Was the Culprit…

A brief or spotty financial track record can be a common reason why business owners are turned down for loans. Perhaps you made a financial mistake a few years ago that’s stained your record, or you had trouble tracking down bank statements from years back. Lenders outside the traditional bank financing world may offer bad credit loans that don’t dive so deeply into your credit score. Approval requirements here usually rely on just a few months of bank statements, a certain amount of years in business and yearly sales.

Shaking hands after you qualify for a loan

If You’re Not Looking for a Hefty Sum…

If you can’t provide financial statements or other finance-related information, and if you can’t adequately describe your business and market, then a bank may be less likely to offer you financing beyond $50,000. But if you’re looking for just a bit of cash to get you through a dry spot, it may be easier to seek out lenders that will offer you a small business loan without having to provide quite as much paperwork as a bank will require. These loans can usually start at $5,000.

If You Need a Specific Type of Funding…

So you were planning on using that bank loan to upgrade your equipment before your busy season starts. In that case, you can opt for a lender that will lease you that equipment directly, rather than having to qualify for a loan to purchase it outright. In this case, the lessor (the financing company) retains ownership of the equipment, while your business (the lessee) has full usage and makes periodic payments for that use over a specified term.

Keep in mind that, as your business grows, you may need to tap into other funding sources as banks are not always the right fit for all types of business financing needs. Remember, there are many financing sources out there that can provide you with the funding you need to run and grow your business, like small business loans, equipment leases or bad credit loans that consider other criteria besides credit scores for eligibility.

If you do decide to take another stab at a bank loan, proving your prowess with these alternative financing methods will have strengthened your credit rating and led to a longer and stronger business operating history. That, along with a more refined approach with the banker, will have upped your odds, and hopefully left you with the confidence you need to give it another go.

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