Declined for a Small Business Loan? Now What?

If you’ve decided to take out a small business loan, you’ve likely put lots of time and energy into deciding on an amount, choosing a lender and producing paperwork.

If you get rejected, don’t feel defeated! Many business owners who are initially denied after a first attempt are successfully funded down the road. What’s important is to figure out why you were turned down and take action to improve your situation before you apply again. Here are next steps you can take to turn a “no” into a “yes”.


Speak with the Lender

You probably won’t be able to successfully negotiate a “yes” once you’ve been turned down. But there’s no reason to be in the dark. Reach out to your lender and request a letter of explanation. The lender should comply and outline the reasons you weren’t able to be funded at this time. Once you know details, you can work on strengthening your business profile to improve your chance for approval in the future.


Check Your Personal Credit Score

Some business owners are surprised to discover that personal credit scores are important when trying for a business loan.  Lenders want to know that you can make payments in full for the life of the loan. Your personal credit score is seen as a reflection of how you handle financial obligations.


Check Your Business Credit Score

For most small businesses, the problem with business credit reports is a lack of credit. This is particularly true if your business is relatively new or you’ve never taken a loan out before.

Work to build up your business credit by asking vendors, creditors or even the landlord of your retail property or office space to report your payment history to major business credit reporting agencies. For more information about business credit, review this detailed article: What are Business Credit Scores and Why Are They Important?


Stick with the Best Loan

SBA loans are generally known as the “gold standard” in small business loans. If you qualify, SBA loans with low-rates, long terms and very low monthly payments are best way to fund a small business.

You might be tempted to go for a quick, online loan to get fast cash. Stop and consider that these types of loans often have sky high rates with very short payback terms. (Think less than a year for some)

If you must access less-than-ideal funds quickly, make sure you can easily make payments for the life of the loan. Late payments or a default can seriously impact later applications for lower cost funding.


Assess the Overall Health of Your Company

In addition to checking business and personal credit scores, banks look at a number of financial ratios.

Until now, business borrowers were in the dark regarding the factors considered. However, SmartBiz Loans now has an educational online tool to help you learn where you stand for each of 7 key criteria banks typically use to evaluate your business. SmartBiz Advisor calculates and helps you learn about the following:

Combined Debt Coverage (DSCR)
Business Debt Coverage
Business Credit
Personal Credit
Business Debt Usage
Personal Debt Usage
Business Revenue Trend

In addition to outlining what you need to know, you’ll receive actionable insights to help you prepare your business to be SBA loan-ready. Your personalized Loan Ready Score™ is a useful measure to help you assess your probability of approval for a low-cost SBA loan before you apply. 

Most small businesses don’t have a Chief Financial Officer on call. SmartBiz Advisor acts as your Intelligent CFO™ for small business loans.  Getting started is easy and free. Answer a few questions about your business and upload your most recent tax return to the SmartBiz Loans secure platform. In minutes you’ll know your unique Loan Ready Score. Once you know where you stand, SmartBiz Advisor will give actionable insights you can use to improve your scores.  Get started today here.


Take Steps to Improve Your Financial Standing

Once you know where you stand on each of the seven ratios banks consider, you can take steps to improve your numbers if needed. The SmartBiz Small Business Blog offers detailed information. Choose “Advisor” in the right rail to access our in-depth articles.

 

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Not sure if you qualify for an SBA loan? Try the new SmartBiz Advisor™ online, educational tool to learn about how you can get your business SBA or bank loan ready before you apply – no cost involved.  You can assess key criteria banks consider and where your business stands on each. Learn more about SmartBiz Advisor here.

*What you need to know: The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes only. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.