What to Do If You Can’t Get a Business Loan

Recent data shows that 70 percent of small businesses applied for an emergency loan, but only 4 percent were actually approved. Small companies have been especially hit by the poor economy, low consumer confidence and shifting regulations. If you applied for funding but were denied for a business loan, it might seem like you’re out of options to help weather the storm.

In reality, there are many sources of business financing, from SBA and bank loans, to credit cards and business lines of credit. If your application was rejected from one or more lender, you still have options to run a successful business. Read on to learn what lenders look for, and what to do if your business loan application is denied.


What Lenders Look For On Your Application

Lenders aren’t required to provide a reason when business loan applications are not approved. However, most lenders consider the Five Cs of Credit on business credit requests:

  • Character: This refers to the business’s borrowing history, or whether its bills and debts are repaid on time.
  • Capacity: A business’s capacity, sometimes referred to as cash flow, is its financial ability to repay the loan in addition to typical operating activities.
  • Capital: A business owner’s personal monetary investment into the business.
  • Condition: External factors, such as the economy, may impact a business’s loan repayment.
  • Collateral: If a loan isn’t repaid, lenders can liquidate some forms of collateral to recoup the principal value.


What to Do if You Can’t Get a Business Loan

Explore Alternative Funding Options and Assistance 

A variety of new programs have emerged to help small businesses that are suffering from economic hardship on federal, state and local levels. Depending on your business, location(s) in which you operate and other factors, you may qualify for such programs, loans and grants to improve your financial situation and keep your business afloat. Learn more with this resource guide from the Innovative Lending Platform Association.


Reduce the Loan’s Principal Amount

One simple explanation why a loan application was denied may be because the requested principal amount was too large for the business’s budget. You may be able to improve your chances of approval by requesting a lower loan principal. Smaller loans will also have a lower monthly payment, which can prevent the strain on your cash flow.


Look for a Different Type of Loan

The type of business loan you apply for can also impact your likelihood of approval, in addition to your ability to repay the loan. For example, if you’re looking for a financing option to help cover day-to-day expenses or when cash flow is low, a business line of credit gives you access to credit whenever you need to borrow money.


Improve Your Business and Personal Credit

Just like personal credit, business credit measures creditworthiness, or one’s recorded financial history. Both numbers are crucial factors on a business loan application.

If your business or personal credit scores are low, take the time to improve them. Good credit can help you save money on interest and make you a better business loan candidate.

Some companies may not even have a recorded business credit history. If you don’t have a business credit score, learn how to establish small business credit.


Improve Cash Flow

Positive cash flow is another important factor that lenders consider on loan applications. While you may not have a lot of room to cut costs, these strategies can help you recover from negative cash flow:

  • Reduce overhead costs: Can you pivot to an online-only establishment? Are there less expensive suppliers with a similar product? If possible, look for ways to reduce recurring overhead expenses, like rent or material costs.
  • Automate repetitive tasks: Reduce labor costs and allow employees to focus on key business objectives with task and workflow automation.
  • Do it yourself: Use free and low-cost marketing strategies or handle your own small business bookkeeping to save money.
  • Review customer payment options: Late payments can severely affect your cash flow. Consider adjusting customer payment terms in order to avoid or penalize such behavior.


Try Again

Just because you couldn’t get a business loan before doesn’t mean you won’t be able to secure one in the future. While it may take a while to improve business credit or pivot your business, you can always apply for business funding again once you’re ready.


Bonnie is a Chicago transplant who's committed to seeing the world on a dime. As an avid news junkie with an affinity for finance, she loves to help others do more with less.

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