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18 Apr Steps to Take After Your Business Loan Application Is Rejected
Rejection hurts. And, unfortunately, small business owners may experience it a lot when applying for a loan. If you’ve been denied a loan repeatedly, you might wonder what to do next. Good news! There are solutions. You can consider a different type of lender, straightening out your business credit history, or revising your business plan.
If your business loan application is rejected, you are not alone. According to the U.S. Small Business Administration, small business loan borrowers face high rejection rates or are not approved for the full amount of financing requested. This may explain why a lack of capital was the second-most common reason for small business failure cited by owners in a CB Insights survey.
Gaining access to credit and loans is a key concern for small business owners. But according to a survey conducted by Nav, nearly one in four businesses don’t know why their application was rejected.
Major lending institutions are not always forthcoming with information to help business owners earn approval. But there are steps you can take before you re-apply to help strengthen your chances.
Understand Why Your Business Loan Application Is Rejected
Find out why your loan application was denied. Your lender is required to provide certain disclosures. A study from Pepperdine University cited by Forbes found the most common reasons behind small business loan rejections were:
• Insufficient cash flow
• Lack of collateral
• Already had a high debt load
Not all lenders are created equal. Minimum approval requirements for each of these categories vary. But in general, traditional financial institutions like banks must follow strict regulations. This makes it almost impossible for small businesses to qualify for a loan.
That helps explain why alternative lenders like QuickBridge have the second-highest approval rate of other lender types. In addition to an easier, faster application process, alternative lenders can extend targeted financing to small businesses without collateral requirements.
Improve Your Business Credit Report
Did you know your business can have its own credit score? According to the Nav survey cited above, nearly half of small business owners were unfamiliar with the concept of a business credit profile. Even higher numbers of respondents said they didn’t know where to find information about business credit reports. Or how to interpret their scores. Nav found that those owners who were informed on business credit reporting had a higher loan approval rate.
More Americans are getting familiar with their personal credit report and how to interpret its findings. Many of the same principles apply to business credit history.
Business credit reports can be created and updated by one of several major reporting agencies. These include FICO, Dun&Bradstreet, Experian, and Equifax; many of which also report on personal credit. Every reporting agency uses its own formulas for calculating a credit score and managing the details included in a credit report. Generally, a business credit report will include:
• Basic background information about the business, including industry, and size.
• Details on active credit lines on previous loans.
• Payment history as reported by former or current lenders and trade partners.
• Public records related to legal proceedings, liens, and judgments.
• Reports from collections agencies that have attempted to recover payment, if applicable.
Business credit reports are maintained and sold by the credit reporting agencies previously mentioned. Unlike personal credit reports, your business’s credit report is generally not available for free. This can make it more difficult to understand problems with your credit that may be preventing you from being approved for a loan. There are a few steps you can take to strengthen your credit profile:
Build Business Credit
Create a strong foundation of credit for your business by registering as an LLC or other legal entity. Ensuring that your business is seen as a separate entity helps keep your business assets and finances independent from your personal ones. In addition, look into getting a federal employer identification number through the IRS. These two steps will allow you to open a business bank account, a dedicated business phone line, and solidify your business’s separate existence. By completing these steps, you’ll have established business credit that credit agencies can then use to build your credit report.
Ask Vendors About Reporting
Much of your business credit report’s information is pulled from your vendors or suppliers. Find out which of your vendors reports payment information to credit agencies and consider prioritizing those payments so they are on time (or even early) every month.
Keep Making Payments on Time
To build a strong business credit score, it’s crucial that you pay at least the minimum payment due for all active accounts on or before the payment due date. Falling delinquent on accounts will have a significant negative impact.
Don’t Borrow More Than You Need
No matter which type of lender you choose, it’s unwise to take on more debt than your business can handle. Decide how much money you need for the current situation. And don’t take a penny more. Invest those dollars on the most critical expenses, repay the loan, and move on to the next project.
QuickBridge excels in short-term financing that meets these objectives. Our loans are designed for small businesses that don’t want the hassle of long-term debt or the frustration of strict credit requirements. Our application process is easy, and we design loans to match the unique needs and opportunities of your business. Bad business credit isn’t an automatic “no” either – we look at a bigger picture of your current business and make the best decision we can for your immediate need.
Get in touch with QuickBridge today to learn how we’re making funding smarter.