Failing to secure financing can be the death knell for many small businesses. However, this does not have to be the case. Some businesses get other sources of funding and continue to thrive. Others may even make second or third applications for a small business loan and prove to be more successful than the other attempts they have made.
Failing to secure funding, which can be a key part of entrepreneurship, can challenge even the most committed business persons. Without funding, you are only left with an idea. What do you even do next>? Instead of quitting, this article explains what you should do when you are denied a business loan.
You could request the lender to give you an explanation as to why your loan product request was rejected. While you may not be able to convince them to change their decision, most lenders will provide you with a breakdown of why your application failed to meet the loan requirements set in place by the specific lender. In this way, you will be more likely to understand why your application failed and how you may be able to improve it.
You could check your credit scores, as well as that of your business. Credit scores can make or break financing options for you. The right credit score can lead to banks swarming all over your loan application, even offering reduced rates of interest that are not accessible by all clients. The wrong credit scores will have you rejected in financial institutions beyond banks, which will happen repeatedly. The right credit score can be the key to opportunity. You should make sure that neither you nor your business is being bogged down by a bad credit score. If it is the case, consider raising your credit score before making any future attempts.
You could recalibrate your business’s internal financial operation to ensure that you have a good debt service coverage ratio. This is a tool through which lenders analyze your business’s performance, and determine whether you can afford to pay debt consistently until it has been cleared. If you are unable to markedly improve your DSCR, you can consider borrowing less funding.
Alternative loan options exist even amongst the lenders who may have rejected you. Lenders do not have one distinct loan products, and do not refuse any business from applying for more than one loan item. You can take advantage of this by considering other loan products, especially those you might be more likely to have approved easily.
You could also plan and develop your second application. The second application should consider the factors that led to your first application’s failure. When taking this into account, you will be more likely to make less mistakes that will cost you a reward of loan. You should go over the details carefully, to ensure that nothing escapes you. After checking on the documentation, credit scores and other important aspects, you can make your second loan request.