A Loan Rejection Doesn’t Mean You Can’t Get a Small Business Loan
The challenge of finding capital is a top-of-mind concern for many small business owners. While a loan rejection is a bitter pill to swallow, there are things you can do to improve the odds that your next application will be successful. You may also want to consider other sources of financing that could yield better results.
Why Was Your Loan Application Turned Down?
Some reasons for a loan rejection are relatively easy to fix, while others take a bit more time. Knowing why your application was rejected can help you create a strategy to address those issues in the future. Some issues like a poor business credit profile will take a little longer to overcome, but at least you’ll know where to start.
Lenders really want to know three things:
- Can your business repay a loan?
- Will your business repay a loan?
- Do you have a backup plan should things not go as planned?
If you can show your lender that you have suitable answers to these questions, your odds of success will improve.
Look Where the Odds Are in Your Favor
According to a study recently conducted by the Federal Reserve of New York, the average business owner spends 33 hours in the search for a small business loan—almost an entire week’s worth of valuable time taken away from the important responsibilities of managing a business. Depending upon your current situation, some options will likely be a better fit for your particular business use-case than others. In addition to the bank, here are other popular places to find capital:
- Friends and Family: This remains one of the most successful places small business owners find capital. More business owners find success with friends and family than grants, crowdfunding, credit cards, and other types of funding.
- Business Credit Cards: A better choice than using your personal credit cards, because they can help you build your business credit profile and likely won’t hurt your personal credit. In addition, business credit cards often offer additional services designed to make managing the credit account easier for small business owners. For example, improved accounting tools to accommodate expense categories. What’s more, like many personal credit cards, some even offer rewards programs.
- Crowdfunding: If you can energize a group of supporters to rally around your business or product enough to individually contribute small amounts of money to your enterprise, collectively those small contributions can amount to significant funding. There are two different types of crowdfunding platforms: Non-investment platforms make it possible for supporters to contribute for early access to your business products, swag, or other perks. The other type allows supporters to invest for a small piece of ownership equity.
- Online Lenders: Most online lenders will require at least a year in business and $100,000 in annual revenues, but won’t require the same rigid credit criteria they do at the bank—provided other healthy business metrics are in place. What’s more, many online lenders offer smaller loan amounts more consistent with what small business owners are looking for. And most offer approval in minutes and cash deposited in your business checking account as quickly as 24-48 hours.
- SBA Lenders: The SBA has made a few moves in recent years to make low-cost capital more readily accessible to small businesses. For example, they’ve removed fees on their most popular loan program (the 7(a) program) on loans under $150,000, they’ve introduced their new online matchmaking tool LINC to match borrowers with appropriate SBA lenders, and they’ve expanded their relationship with credit unions to put more smaller-dollar loans in the hands of small business owners.
- Non-Profit Lenders: Non-profit lenders are a great option for businesses that can leverage a small loan amount into a big bang for the buck. These low-interest and sometimes no-interest loans, frequently in amounts under $10,000, are designed to help foster growth in micro-businesses. These lenders are often very mission-driven, so if the mission of your business coincides with theirs, this could be a good fit.
It’s natural for small business owners to approach the local bank where they already use other banking services first. And, while the bank is a good option for those borrowers with a few years under their belt, a strong business and personal credit profile, and collateral, it’s not the best option for all borrowers.
Addressing potential problems in your loan application and looking where the odds of success are greater is the best way to bounce back from a loan rejection and find the funds your business needs to fuel growth and fund working capital needs.
Click HERE to learn more about some of the different financing options, what it takes to qualify, how quickly you can access funds if approved, and how much is typically available from each lender category.