A business loan can make or break your company, it can help you expand current operations or build the business from scratch. Getting your business loan application denied can be a huge roadblock. But, learning why you were denied and preparing yourself to apply again will help you. Do not apply again as you run the risk of causing excessive inquiries, further hurting your business credit.
If you were denied a business loan, review these 5 tips before applying for a loan again:
Find out why you were denied a business loan.
Contact the business loan lender and ask them why your application was not approved. Lenders must protect themselves from risky borrowers and every lender has their own standard for approving business loans. You should know that underwriters do not have to answer your questions. However, if personal credit was pulled, the lender does legally have to provide you that information, as well as what score was used to determine eligibility. If your credit score factored into their decision, it means your score needs work or your business lacks enough credit history to judge the risk.
Obtain copies of both your business credit reports and personal credit reports.
A common reason for loan denial is credit history. Assess both your business and personal credit reports for accuracy. To obtain your business credit reports, you would purchase from the credit bureaus: Equifax, Experian, or Dun & Bradstreet. For your personal credit report, you can purchase a report from Equifax, Experian or Transunion. Banks use FICO credit scores. There are over 50 versions of the FICO scores. You can find the mortgage FICO score when you purchase a 3B FICO report from the MYFICO site.
These reports are all resources to help you identify why you have a low credit score and can provide insight on improving your eligibility for a business loan via business or personal credit score improvements.
Working with a business credit expert like North Shore Advisory gives you access to purchase a merged copy of all the reports at a lower cost.
Double-check all business loan documentation.
There is a possibility that there is something wrong with the paperwork submitted. Not completing the loan application correctly, or forgetting an important document is almost guaranteed to get you denied. Supporting documents that are often requested in a loan application include: tax returns, bank statements and a written business plan. If the documents are correct, it may be that your financials or credit score did not meet this lender’s requirements. There are many different types of loans available to business owners. Be sure to explore alternative small business loan options.
Prepare before re-applying for a business loan.
Each lender has their own unique requirements. Do your research and see if you qualify for other types of business financing. If it was business credit that caused the denial try to find a lender who will approve you with a personal guarantee and will report to the business credit bureaus.
To improve your business credit, you must take care of any loose ends. Begin by paying off any debt you have. Do this consistently and on time. Improve your personal credit score and start to build business credit. Do all of this, and you are on your way to increasing your chances of business loan approval.
Speak with a business credit professional.
There is a team of business credit experts at North Shore Advisory who have helped hundreds of businesses position themselves to access funding. We guide you in the right direction and provide insight into your business credit reports.
Do not let this denial discourage you, many businesses get denied for loans, especially young ones. Banks take a risk when lending out money, they want to make sure that they give it to someone who will pay back the debt.