The application process for new business funding can be stressful and time consuming. We understand the importance of securing a reliable source for working capital can be absolutely necessary for many businesses to run their daily operations. When your loan application is denied by the lender, it can be very disappointing and feel like a nightmare situation. Dealing with the rejection of a loan application can certainly feel like the end of the world, but we are here to reassure you that it is not and that you do have other options. This is why we’ve compiled a list of things you can do if your application was recently declined.
- Ask the lender why you were declined
Just because your loan application was declined this time, it does not mean that the business will always be declined for funding. Understanding why your file was declined is the first step to improving your chances for the next time you decide to apply.
Before you start the loan process again, ask the lender why you were declined. Some lenders will not disclose the specifics that led to the decline but you should receive an official decline letter in the mail. This letter will outline specific reasons that led to the rejection. Factors like time in business, high risk industry scoring, or debt to income ratio may be at play. Asking the lender to explain the decline in detail will help you target what needs improvement in the future.
- Understand your business credit score
Knowing what your business credit score is just as important as knowing your personal credit score. Making on-time payments to creditors is the best thing you can do to build a good business credit score. Personal FICO scores range from 300 to 850; while business credit scores generally range from zero to 100. If you have a business credit card for your company, you probably have an established business score which will help you secure better terms the next time you apply for a small-business loan.
An easy way to improve the business score is by applying for a credit card in the business’ name. When working with vendors ask if they report payments. Try to stay away funding the business through personal loans since they do not contribute to the business credit score.
- Pay attention to the health of your business bank statements
Lenders closely look at the following factors when reviewing the business bank statements:
- Consistent average monthly deposits
- Healthy daily ending average balances
- Minimal NSFs or Overdrafts
- Minimal returned check items
- Proof of business-related deposits
- Healthy number of deposits (more than 5 individual deposits per month)
- Consider researching an SBA Loan
If you have exhausted all financing options, you may be eligible for a financing through the government. The SBA has various programs that help business owners find funding. Commercial banks partner up with the SBA and act as the guarantor. Please note, that your business and personal credit will still be an important factor when applying for an SBA-backed loan. The SBA loan application also requires extensive paperwork to reduce their risk by reviewing many forms documentation.
If you don’t have a considerable amount of time or think you will qualify for an SBA loan, consider working with an alternative lender.
- Consider working with an alternative lender
If you have been declined by most traditional lending sources, consider looking for an alternative funding option. Companies like Merchant Funding Solutions, Inc. partner with a vast network of private lenders who can offer fast funding without an extensive application process and waiting period to receive funding. Factors like business and personal credit are still reviewed but the underwriting process focuses on the current health of the business as well as your growth potential when considering extending a loan approval.
- Take a break from applying to focus on improving specific areas
If you were declined because of time in business the best thing to do is to take a break until your business has reached the minimum time in business. If you were declined due to low monthly average deposits, you can take time to focus on generating an increase in revenue so you can reapply with a higher monthly gross average. If you were declined due to business credit, try to open a credit card in the business name or partner with a vendor that reports payment history.
If your business has recently been declined for funding through a traditional lender remind yourself that it is not the end all be all, and that you do have other possible options. Outside working capital sources do not always need to come from lenders or traditional banking institutions. Consider asking friends or family who may be interested in investment potentials. Personal friends or family are more likely to trust your ability to repay the loan when other financial institutions will not.
Consider working with a company like Merchant Funding Solutions, Inc to help you improve your overall chances of getting approved. Our experience loan consultants can review your file and help you plan ways to improve the business credit and your personal credit score. Focusing on new ways to generate revenue will also strengthen the business profile in the eyes of a potential lender.
The information and insights in this blog post are provided for educational purposes only and do not constitute financial advice from Merchant Funding Solutions Inc. Please consult your financial advisor before making any business financing decision. For information about Merchant Funding Solutions products and services, please visit the Merchant Funding Solutions FAQ page.