Your Next Steps After a Business Loan Is Declined

When trying to start a new business, being turned down for a loan from a bank or other financial entity can be ego-crushing. The reasons for denial vary, but whatever they are, you shouldn’t see this as the end to your dream. Dust yourself off, put yourself in a good mental place, and plan your next steps after a business loan is declined.

Assess and Address the Reasons

When your loan is turned down, ask why. It’s rarely personal. It has little to do with your personality and everything to do with your financial standing (or lack thereof). Common reasons include excessive debt, a low credit score or no credit history at all, or the absence of collateral. Or perhaps the bank simply doesn’t want to take a chance. You can make improvements in some of these areas. Obviously, you should pay your bills as quickly as possible. Raise your credit score by paying off any credit card debt and using your cards less often. If you don’t have enough credit history to inspire confidence in the lender, form an LLC or corporation, and start a checking account under your business’s name to build a financial presence. Basically, raise your profile, and make it shine.

Look for Other Kinds of Funding

Banks aren’t the only source of loans these days. Some brokers can help you get loans from other institutions. Credit cards, of course, can provide needed capital to start a small business, but pay off those bills quickly and watch those interest rates! Search out and apply for grants through the government and other entities. Finally, don’t forget the Internet. There are plenty of sites for crowdfunding a new business. If you have a retirement fund, explore the possibility of 401(k) business financing as well.

Review the Paperwork

If you are genuinely surprised about not receiving a loan, and the reasons you receive seem inaccurate (your credit score is impeccable, etc.), make sure you did everything correctly. Review your applications, and comb through the records and materials you provided to ensure that they provided an accurate picture of your financial status. Incomplete or erroneous documents may give a false impression, but they can also signal to the lender a lack of professionalism on your part. Make notes and do a better job with the next application.

Ask for More, or Find a Smaller Lender

When considering your next steps after a business loan is declined, know that some banks and institutions reject loans because they won’t bother with small sums. The service costs aren’t worth the hassle. Asking for a larger amount—while being sure you can pay it back—may pique their interest. If you don’t need that much money, investigate nonprofits and government programs that provide microlending. A small loan can go a long way!