Words that all business owners dislike hearing from a lender are, “Sorry, we just can't approve your loan. " It's frustrating when your business loan is not approved, and it may feel like your business ideas are now a hopeless venture. Rather than letting those feelings of despair overcome you because your business loan was not approved, though, step back and examine things carefully.
- Don't take it personally.
While some lenders can approve or decline a loan based on the business owner's character, there are other factors involved when your business loan is not approved, such as credit scores, income, debt ratio, and the risk of the business. When a business loan is not approved, it is most commonly due to one of these four reasons.
- Be gracious.
If your business loan is not approved, be sure to thank the lender for reviewing your loan application and proposal. Don't leave on bad terms. You never know what the future holds, and it could mean that you'll cross paths again, especially if your loan approval was considered “borderline. " Just because the lender said “no" today, it doesn't mean that your business loan won't be approved in few years, or even a few months.
- Ask the lender to review the details as to why the business loan was not approved.
Without getting defensive, seek information from the lender stating why the business loan was not approved. This information will be one of your most valuable tools when applying for your next loan. The more details you can get from the lender, the more prepared you can be for the future. There may be instances where you can correct the loan proposal or application when your business loan is not approved, and eventually get approved for your business loan with that same lender.
In the instance that your business loan is not approved, it's time to not give up, but rather, to become resourceful. There's more than one way to get the money you need for your business.
- Review your loan proposal in detail.
When your business loan is not approved, it's time to go back to square one and look at your presentation pieces. After reading through the details, put yourself in the lender's shoes. Would you approve a loan to someone like yourself with the loan proposal you're reading? If there is inadequate or incomplete information in your proposal, such as a business plan that lacks direction and goals, rewrite that information for your next application. A business loan is not approved often because the lender is not clear as to how the business will operate and succeed. Additionally, examine your credit reports carefully. Request copies of your reports from Experian.com, Equifax.com, and Transunion.com.
Marks and errors on your credit report should be resolved accordingly before applying for a loan again. If the marks against your credit rating cannot be removed from your credit reports, be prepared to tell the second lender that you approach not that you are aware of these marks, and give they reason why they are there. Offering these explanations to the lender show that you are a responsible enough person to live up to these errors, and a trustworthy enough person to tell the lender about these marks before they find out for themselves.
- Examine the lender that you approached for the loan.
Is this lender one that specializes in business loans? Do they cater to small businesses and start-up businesses? Do they offer personalized service? If you approached a larger lender for a loan and your business loan was not approved, that could be the reason why it happened. Smaller banks and credit unions allow you the opportunity to work face-to-face with the decision maker who will approve or decline your business loan. Larger banks and financial institutions do not offer you the opportunity to state your case directly to the decision maker, which can increase your chances of not being approved. In the event that you approached a large bank, focus your second attempt on a smaller bank or credit union if your business loan is not approved. If you currently have accounts or a reference from someone else regarding a smaller bank, try that one first. Just because your business loan is not approved with one lender, it doesn't mean that another lender won't approve your application.
- Consider another type of loan if your business loan is not approved.
Small business loans can sometimes be difficult to obtain no matter where you turn or to what type of financial lender you turn to, and in these instances, consider other sources if your business loan is not approved. For example, if the loan amount needed is $10,000 or less, consider applying for a signature loan. If the loan is for a sizeable amount, or more than $10,000, and your business loan was not approved, consider refinancing your home in order to receive cash out for business purposes, or offer other collateral for a personal loan. Home equity loans can offer the lowest interest rates, but don't forget to consider all other types of loans initially. Take your time, and weigh all factors carefully.
- Contact the Small Business Administration.
The Small Business Administration offers guaranteed loans to businesses meeting their criteria, and specifically, the SBA has loan programs especially for women-owned businesses. Contact your local SBA offices for information, or visit www.sba. gov.
The key to overcoming this financial obstacle if your business loan is not approved is to become creative in these areas. There is more than one way to obtain a loan, and if you truly have a viable business idea, you should be able to find funding as long as you've done your homework and developed an effective and detailed business plan and loan proposal.
Rebecca Game is the founder of Digital Women ®, an online community for women in business. A 30 year entrepreneur and dedicated to helping other women find business loans. Visit her site: Loans for Women