Business Loan Denied? What to do Next

April 11, 2023

Loan Application Denied? Here's what to do next

When you’ve worked hard to start your business and applied for a loan only to be denied, it’s hard not to feel like the world is against you. But it’s important to remember that being denied doesn’t equal failure. Your business may not be a good fit for every lender, and every lender may not be a good fit for your needs.

When or if your business is denied for a loan, that’s the time to harness the entrepreneurial spirit that led you to start a company – use that energy to keep the search going. In this post, we’ll discuss common reasons why small business loans are denied and how to move forward to make your dreams of owning a business or expanding your existing one come true.

Whether you’ve already been rejected for a loan, or you want to learn how to avoid a rejection in the future, this article will help.

Why Was My Business Loan Denied?

Denials can be triggered by several factors, yet the following are among the most common:

Length of time in business.

Despite their enthusiasm and ambition, fledgling entrepreneurs may find themselves denied business loans because of the limited time they’ve been in business. Time provides the necessary data for the underwriting process. For example, time establishes trends (cash flow, growth, customer reviews and more), which help underwriters understand how a business is doing. 

If you’re hoping to secure a loan, be aware that some lenders require at least two years of operational history. For businesses with a shorter track record or for those who only have a business plan and financial projection, lenders who offer SBA loans are likely the ideal fit.

Limited financial record.

Having a sparse financial history makes it tough for lenders to accurately assess the risk of extending a loan. Records such as business tax returns, current financials that show year-to-date performance and proof of personal and/or household income can provide supplemental information.

Not enough cash flow.

A lack of sufficient cash flow signals to lenders that you could be at risk of falling behind on loan payments, something they most certainly do not want. If your existing business financials or financial projections cannot demonstrate how you can realistically repay a loan, it’s highly likely that your application will be rejected. Cash is king for businesses, and it’s no different for lenders. Without it, neither party is likely to get comfortable with a loan – whether that’s a borrower receiving a loan they can’t afford or a lender issuing a loan that cannot be repaid.

Poor credit history.

When talking about business loans, “credit” refers to both business and personal credit. In our experience, business credit reports provide only limited data on the credit risk and profile of a business. Lenders then look at personal credit to get a better picture. An owner’s personal credit history is an important predictor of the business’ credit character and how it will manage company debts.

Many lenders will not grant loans to companies with credit scores below 640. To be approved, some lenders require a rating of 700 or above. The better your business and personal credit score, the more attractive you will be to lenders.

What To Do After Your Business Loan Is Denied

While being denied by one lender can be discouraging, it does not have to spell the end of your journey. By taking a few simple steps, you still stand a chance of receiving approval from another provider.

Contact the lender.

If the lender hasn’t offered you an explanation for your loan denial, contact them to gain insight into what areas of your finances need improvement. The more knowledge you have, the better prepared you’ll be to explain any gaps or improvements and secure business financing in the future. Here’s a list of the top 10 questions you should ask potential lenders.

Boost your credit score.

The best way to do this is by paying business and personal obligations on time. If you’ve missed payments in the past, start making timely payments today. Time heals all credit wounds. Start small. If you don’t have established credit, start by obtaining something simple like a business credit card, and then make payments as agreed. 

Bonus tip: Ensure your lender reports on behalf of business loans and credit cards. Not all lenders do. If you start small, ensure your lender reports your repayment performance to make it easier to obtain future, larger levels of debt.

Offer all available collateral.

Lenders make most loan decisions based on your ability to repay a loan (i.e., cash flow). Lenders also look at collateral they could collect should loan payments cease. Offer up all of your business and personal collateral to sweeten the request. 

In situations where existing collateral is insufficient, a lender with SBA expertise is a better option. One of the top reasons a loan is made using the many SBA programs is due to a collateral shortfall.

Improve your finances, and your understanding of your finances.

To get your finances in a more desirable place, focus on increasing your cash flow and eliminating excessive overhead. But more importantly, make sure you understand your finances. Lenders want to know that business owners understand their finances. Owners should know how to grow revenue, which expenses can be trimmed back and what amount of money needs to be spent to increase future revenue and unlock desired growth opportunities.

Seek out alternative lenders.

Alternative lenders are a great resource in place of traditional banks, and typically offer various loan options from online direct lenders to crowdfunding sites to marketplace lending platforms. These providers are often willing to take a greater chance on business owners with a history of financial difficulty or credit score issues. If you’re looking for an innovative way to get a loan, checking out alternative lenders could be the right move.

Apply again when it’s time.

After you’ve pinpointed the underlying cause of your loan rejection and worked on improving those areas, it’s time to apply for credit from a non-traditional lender. A rejection does not have to mean that your business venture is over. With effort and determination, you can still secure the business loan you need.

In addition, there are alternative business financing options available to entrepreneurs who have been denied a business loan. These solutions can provide business owners with the opportunity to access business capital without having to rely on traditional business loans.

Are You Ready To Take Out A Business Loan?

Not everybody may be prepared to take on the responsibility of having a business loan. Here are some questions to ask yourself before you dive in:

  • What is your business’s cash flow like?
  • Do you have sufficient business assets to put up as collateral, if needed?
  • How will you use the business loan funds?
  • What are your business and personal credit scores like?
  • Are there any other business financing options available?

Ultimately, business loans are a great way to grow your business and provide you with the capital needed to reach your goals. However, you also have to ensure that you have the capacity to repay the loan and have a business financing plan in place.

While some alternative lenders may make it quick and simple to secure funding, keep in mind that it doesn’t mean the loan is right for you. Not all debt is good debt, and it’s okay to say “no” to someone who said “yes” to you if the terms are unrealistic for you to honor or afford.

Regardless, you still need to commit to improving your business and personal credit scores, increasing business assets and boosting cash flow. When you’ve done this work, you should be in a better place to secure business financing.

Get The Funding You Need With LendThrive

Are you ready to take control of your financial future? Apply for a fixed-rate business loan of as much as $150,000 with LendThrive today and start benefiting from our reliable, secure platform. The process is done online, and borrowers can get approved in as fast as 24 hours. It is our mission to make business financing easier for entrepreneurs, even if you’ve been denied a business loan in the past. 

To qualify for a loan with LendThrive, ensure that you have the following:

  • A minimum of $10,000 in monthly sales and operating profitably
  • An active bank account
  • In business for at least two years
  • Credit score of 675
  • No open judgements or tax liens
  • No history of bankruptcy within the past 7 years (personal and/or business)

You should own at least 20% of your business. All owners with 20% ownership or more should sign the loan documents. 

You can get pre-approved for a loan with no hard credit pull. Apply now.

Go Back