Don’t feel disheartened if the bank rejects your business loan application. Instead, it would help if you analyzed the reasons for their rejection.
In this blog, we will discuss the steps you should take to be better equipped the next time you submit your application to help improve the chances of your application being approved.
Important Steps to Take Post-Business Loan Rejection
These are the steps you may want to consider taking after your loan request has been rejected:
- Get feedback from the bank
The bank usually sends you a letter in response to your application which may or may not include an explanation for their decision. For a better understanding, you can meet the concerned personnel to receive detailed feedback on your application.
- Analyze the reasons for the rejection
Analyzing the reasons is the most crucial step. The most common reasons for business loan rejections are:
- Poor credit score
- Inadequate experience
- Insufficient cash flow
- Insufficient collateral
- High outstanding debts
- Incomplete or missing financial documents
- High-risk business
- Bad ratios
- Review your credit report
If low credit scores are the reason for the rejection, you must review your score to check for any inaccuracies in your credit report. You can access your report from Annual Credit Report.com, where you can get a copy of your credit score once each year, free of charge. You may source your report from any of the following nationwide consumer reporting agencies:
If there are any errors in your report, you can use the following guidelines to make the changes. If the given credit rating is correct, you should take steps to improve it at the earliest, such as:
- Pay your debts on time
- Keep your credit utilization report below 30%
- Keep old accounts open
- Review your financial ratios
Review your financial ratios, and if you find any inadequacies, work on improving them. The important financial ratios the banks evaluate are:
- Inventory turnover
- Average collection period
- Net profit margin
- Return on assets (ROA)
- Improve Your Cash Flow
Limited cash flow is another primary reason for business loan rejection by the bank. You can improve your cash drivers by:
- Improving your sales
- Accepting more cash than credit as the payment
- Prioritizing the sale of old inventory
- Offering lucrative schemes for early payers
- Approach other banks
If you are dissatisfied with the reason offered to you by the bank for their rejection, you may approach other banks. As the loan approval criteria for each bank vary, you may get a favorable response from them.
- Look for other financing sources
Today, there are several other financial options available that you may consider, such as:
- Fintech lenders
- Angel investments
- Venture capitalists
- Peer-to-peer lending
- Grant funding
- You may want to consider getting a co-signer
If your co-signer has a good credit score, it may be easier for your loan to be approved. Your co-signer will take on the repayment liability if you fail to repay the loan.
- Revise your business plan
Revise your business plan to make it brief, realistic, and convincing, which allows the lender to believe in your plan.
Consult on Business Loan Related Questions with Economic Development Collaborative
To learn more about funding programs, contact us today. Our team at Economic Development Collaborative has expertise in business management, funding, and other important strategic planning initiatives.