You’ve crunched the numbers and decided you need to raise finance to get to the next stage. You’ve brushed up your latest accounts, done some projections, downloaded your bank statements and applied to your bank. But no deal. Business loan declined – come back next year.
If that’s you then you’re not alone. Understanding why your loan was declined and exploring alternative funding options can help you navigate this challenge and secure the necessary capital for your business. This guide will walk you through the steps to take after a loan rejection, provide insights into alternative funding sources, and offer tips on improving your loan application for future success.
Understanding Why Your Business Loan Declined
The first step in addressing a business loan decline is understanding why it happened. You should contact the lender and ask for the reasons why they can’t help you. In addition ask them what you could do to go from a “no” to a “yes”. Any decent lender will give you advice at this point. This information is gold dust and will put you in a much stronger position so you can figure out how to improve your application or successfully apply to another lender.
Common reasons for a business loan decline include:
- Poor Credit History: Lenders assess your credit score to determine your creditworthiness. If your credit score is impaired, it signals high risk.
- Insufficient Time in Business: Many lenders require a minimum period of trading history to ensure stability. If you’ve been trading for less than two years, you may face difficulties with lenders.
- Cash Flow Limitations: Problematic cash flow can make lenders hesitant to approve loans.
- Lack of Security: Without sufficient personal or business assets, lenders may decline your application.
- High Levels of Debt: Excessive loan repayments can raise concerns about your ability to repay additional loans.
- Industry Risk: Some industries are considered high-risk by lenders.
Check your Credit Score
Yes, lenders look at your credit score. And yes, you can improve it. Some of the simplest steps you can take personally to improve your credit score are making sure you’re on the electoral role and checking your credit file to see if you have any unknown credit issues you can resolve.
Check out these tips on improving your business credit score.
Also, you’re still more likely to be accepted for a straight-forward business bank account than a loan. You can get business bank accounts that come with a debit card and are easier to be accepted for as no credit is provided. Read our guide to compare business bank accounts.
Check your credit report
- Check your Credit History as reported to Equifax, Experian & TransUnion
- Identify problem accounts, and take steps to minimise their impact
- View up to 6 years' history of your repayment performance
Clicking below will redirect you to checkmyfile.com where you’ll be able to check your credit file FREE for 30 days, then £14.99 a month – cancel anytime.
Work on the Business
We all work in the business—doing the day-to-day tasks that keep things ticking over. But when did you last step back and work “on” your business? Poor cash flow and insufficient income are two of the most common reasons lenders refuse business loans. So, take some time out of your business. Review your terms of trade—can you improve your payment terms to bolster your cash flow? Review your pricing—can you raise your prices to improve profit margins or offer discounts for bulk orders?
Managing your cash flow is essential for any business. It serves as the lifeblood that keeps a business thriving and adaptable in the market. This includes understanding and managing the timing and amounts of cash inflows and outflows to maintain a healthy financial position and meet financial obligations. For business owners, effective cash flow management is particularly crucial as it directly influences the financial health of their business.
Need more inspiration? Read this guide on different ways to improve working capital.
Try Different Lending Products
You know you can’t fit a square peg in a round hole, but that’s often what it’s like for businesses applying to their bank. No wonder so many business loans are declined.
However, there are lenders that quite like square pegs. There is no set criteria that lenders use, and so they all have very different approaches to assessing business loans. Some are led by credit scores; some are led by income streams; a few obsess over the asset being funded, while others focus on the security being offered. If you’ve had a business loan turned down by your bank, try a challenger bank, an alternative finance provider or a peer-to-peer lender.
Using a business finance broker can help you quickly and easily work out which lenders are a good fit for your business. In fact, around a third of the businesses that we help have previously had a business loan declined by their bank. It’s not the end of the road by any means – you’ve just got to persevere and speak to the right lenders.
Pressing Ahead after a Business Loan Decline
If a lender has turned down your business loan, it can be a setback, but it’s also an opportunity to reassess and strengthen your financial position. By understanding why your business loan was declined, improving your financial health, exploring alternative funding options, and preparing a strong loan application, you can increase your chances of securing the necessary capital for your business. Remember, persistence and proactive steps are key to overcoming financial challenges and achieving business success.
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