Rejected for a Business Loan? Here’s What to Do
Small businesses are the backbone of the American economy — so small business owners like yourself should have access to the same resources and opportunities as larger businesses, right? Unfortunately, that’s not always the case. One common obstacle small businesses face is getting a traditional loan from a bank.
If you’ve been turned down for a business loan, you may be asking yourself, “Why can’t I get a loan?” But don’t despair. We understand the frustration that comes along with this and want to help you succeed. There are other ways to get the funding you need to grow your venture. Here’s what to do if a lender rejects your loan application.
Typical Loan Denial Reasons
If a lender rejects your loan application, you are probably wondering why. Here are some common reasons why banks deny loan applications:
- You don’t have a high credit score. Banks usually require a credit score of at least 670 to even consider your application.
- Your financial ratios are not impressive enough. Your debt-to-income ratio should be lower than 36% to qualify for most bank financing products. The percentage assigned to your rent or mortgage payments should also not exceed 28%.
- You do not have commercial real estate or sufficient collateral to secure the loan. The availability and corresponding value of your collateral is necessary to determine your eligibility and the amount that will be approved.
- The lender doesn’t believe your business is stable or profitable enough to justify the loan. Most banks require businesses to have been operating for at least one year and earning $100,000 annually. This varies from lender to lender, but the need to show proof of profitability is consistent for all banks.
If you’ve applied for financing but the lender rejected your loan application, don’t give up just yet. There are alternative ways to get the funds you need for your business.
5 Steps To Take After Being Denied for a Loan by a Bank
If you’ve been turned down for a loan, make sure to speak with your lender about it. Find out why they rejected your loan application, and try to address their specific concerns. Here are five additional steps you should take after receiving a loan denial letter:
- Re-examine your financial situation to see if there are any errors or inaccuracies that would cause the lender to deny your application.
- Look into building your credit rating by opening additional lines of credit and making timely payments on them. This will show lenders that you can manage debt responsibly when you try to apply again in the future.
- Determine why your lender rejected the loan application so you can create a stronger business plan for next time. You could also ask an experienced financial advisor to evaluate it for you so that you are better prepared next time.
- Find alternative sources of financing to build your business’ creditworthiness before trying for another loan. This could be done by borrowing from friends or family, utilizing merchant cash advance services, or working with a lender that specializes in the needs of small businesses, like LendThrive.
- Explore other funding options besides bank loans and financing. Grants from private organizations are commonly used to finance startups, while government-funded programs can be an excellent source of funding for regional or local businesses.
Be careful not to apply to several loan providers at the same time as attempts and rejections can have a negative impact on your credit history. Be sure to do your research on requirements first and make sure these are complete before filing anything.
Alternative Funding Sources To Consider
When a lender rejects your loan application, it can be extremely discouraging. You may start to panic, but fret not. There are other ways to get capital you need for your business and other sources that want to help you. Here are some alternatives you might want to look into:
Credit cards
If you don’t have a good credit history or cannot provide the lender with enough collateral, a credit card may be your best, short-term alternative. You can either get one through your bank or start applying for them online. Make sure to make payments on time to build up your credit score and improve your chance of getting approved for future loans.
Online lending providers
Many online lenders provide loans to small business owners to help them start or scale their ventures. LendThrive is one such company that offers fixed rate business loans from $25,000 to $150,000. The application process takes about 15 minutes via our website and funds can be released in as fast as 24 hours upon approval.
Peer-to-peer (P2P) lending
P2P lenders typically require that your company be operational for at least one year and have $100,000 in annual sales before you can apply for a loan. Also called crowd lending, this service connects borrowers directly with investors, and several investors may fund an account at the same time.
Government grants
The government offers various loan programs to small businesses but will only award them after stringent qualifications are met. It may also take several months for the application process to be completed.
Get The Funds Your Business Needs From LendThrive
Alternative lenders like LendThrive provide financing solutions that do not involve as meticulous or lengthy an application process as banks. While there still is a minimum credit score (670) to fulfill in order to get approved, it offers more flexible options that will increase your chances of getting the funds you need.
If a bank rejected your business loan application and you are looking for other sources, LendThrive just might be what you’re looking for. Our fixed rate business loans are the right fit for small business owners trying to navigate the challenging economic environment.
It is our mission to help small business owners and entrepreneurs secure the funding they deserve.
Apply now to grow your business with LendThrive!
