Dealing with a Business Loan Decline to Turn It into an Approval

Many small business owners frequently face the challenge of small business loan refusal. Whether you want to expand, cover operational costs, or enhance cash flow, a refused loan can be upsetting. However, understanding the reason for business loan rejection is key to overcoming it and turning the refusal into approval. Businesses can improve their chances by addressing key elements like creditworthiness, financial stability, and a stronger application.

Rejection is difficult but common; many successful companies have faced challenges in securing capital. How you respond to rejection is what matters most. This article will coach you through the actions to follow after a business financing rejection, ensuring you are ready for your next application.

Common Reasons for Loan Declines

It all begins with Loan Decline Letter: When receiving a loan decline letter, don’t lose hope. It’s essential to carefully review the feedback to understand the lender’s concerns and make improvements.

Approval starts with knowing why your loan was turned down. Common reasons include:

1. Issues on Bank Statements:
   The primary reason for business loan rejection is not just bad credit history but often problems with bank statements, particularly negative balance days and NSF (Non-Sufficient Funds). Lenders closely review your bank statements, so maintaining consistent cash flow and paying bills on time is crucial for approval.
2. Consistent Revenue:
   Lenders need to see steady revenue. If your income is volatile or shows a decline, it can affect the loan terms or lead to a decline. Establish steady revenue streams to demonstrate your business’s financial stability to lenders.
3. Capital to Grow, Not Save:
   Greenbox Capital provides capital to grow businesses, not to save them, essentially providing help with small business loans. If your business is struggling, it’s essential to raise revenue or cut costs to improve financial health before seeking capital. When risk models detect a high likelihood of insolvency, it impacts the risk scoring, potentially leading to a business funding refusal. In such cases, the guidance is to find ways to increase revenue or lower debt, then reapply approximately 60 days after financial stabilization.
4. Personal Credit History:
   Lenders evaluate personal credit, and bad personal credit can lead to rejection. Improving your personal credit score, which typically takes 60 to 90 days, through timely payments and responsible credit management, can improve your chances of success.
5. Collateral:
   Some lenders require collateral to secure a loan. Ensure your business has valuable assets to match the loan amount or consider applying for a business loan that aligns with your collateral value.

Steps to Take After a Loan Decline

Receiving a loan decline is not the end of the road. Here are steps you can take to turn rejection into future approval:

1. Seek Detailed Clarity from the Lender:
   Instead of only reviewing rejection letters, contact the lender directly for detailed feedback. This feedback will help you identify areas for improvement and develop a stronger strategy for your next loan application.
2. Review Your Bank Statements:
   Maintain positive balances, avoid overdrafts, and ensure there are no NSF incidents before reapplying.
3. Stabilize Revenue:
   Stabilize your revenue streams and show potential lenders that your business is financially stable.

Improving Creditworthiness

One of the main reasons for small business loan refusal is a low personal credit score. Here are steps to improve your credit:

• Pay Off Existing Debt:
  Reducing your debt-to-income ratio boosts your credit score. Focus on lowering credit card balances and loan debt.
• Correct Credit Report Mistakes:
  Review your credit report for errors and dispute any mistakes.
• Make Timely Payments:
  Set up automatic payments or reminders to avoid missed payments.

Enhancing Your Business Profile

To strengthen your loan application, focus on improving your overall business health:

• Improve Your Business Plan:
  Make sure your business plan is comprehensive, with clear financial projections.
• Increase Profitability:
  Review your operations to increase revenue or reduce costs. Focus on demonstrating steady cash flow.
• Demonstrate Consistent Cash Flow:
  Lenders need to see consistent cash flow to ensure you can repay the loan. Stabilize your accounts receivable and minimize unnecessary expenses.

Alternative Business Financing Options

If traditional loans are not an option, consider alternative business financing:

• Business Lines of Credit:
  These provide flexibility, allowing you to borrow up to a specified limit as needed.
• Merchant Cash Advances:
  You receive a lump sum in exchange for a percentage of future sales, though it may come with higher costs.
• Business Loans for Low Credit:
  Some lenders specialize in loans for businesses with low credit.

Preparing to Business Loan Reapply

After addressing the reasons for rejection, prepare to reapply by:

• Showcasing Improvements:
  Highlight specific changes like stronger financials, a revised business plan, or better personal credit.
• Timing Your Application:
  If a business has faced a major cash flow challenge, aim to reapply about 60 days after stabilizing financials by increasing revenue or lowering debt.
• Staying Honest:
  Be honest about your financials; underwriters will uncover any discrepancies.

Final Say

Rejection is not the end but an opportunity to learn and grow. By addressing the causes of rejection, improving your financial health, and being patient, you can turn a loan denial into a future approval.