Having a rejected business loan application is a position that no small business owner wants to be in. Not only can it be a blow to your self-esteem, but it can also cause panic, particularly if you were relying on those funds to keep your business afloat.
Rather than seeing an unsuccessful business loan as the end of the world, it can have its silver linings and be a wonderful opportunity for growth and self-improvement. Today, we’re going to tell you how you can recover from a rejected loan application – without losing your dignity.
Find Out Why You Were Rejected
The first important step to take is to ask your lender for the reasons why your application was rejected. Lenders are required to provide certain disclosures and are always more than happy to discuss your application with you.
Understanding the reasons behind your failed application will give you a great idea of what areas you need to improve in before you apply for another business loan. Generally, most applications are not approved due to either poor credit or a high debt-to-income ratio.
It’s important to realize, however, that sometimes your credit was insufficient because you don’t have enough evidence of borrowing and repaying loans. In other words, you might have never used a credit card before or taken out any other loans. In this case, obtaining a personal credit card and utilizing it properly can be beneficial for boosting your credit profile.
Check for Inaccuracies on Your Credit Report
You can obtain a copy of your credit report for free at least once per year. You may be surprised to know this, but your credit report doesn’t just discuss your credit score and payment history. It also collects public record information such as bankruptcy filings, foreclosures, tax liens, and more.
This is why it’s vital that you not only ensure there isn’t any incorrect data on these files, but that you also ask the reporting body to clear up these inaccuracies ASAP, as they can be extremely harmful to your chances of being approved.
Pay Off Any Outstanding Debts
Your existing loans may also be a reason behind your business loan application rejection. Reducing your monthly debt repayments make you look better as a borrower, as your lender will have more confidence that you can successfully meet their repayments. Things that come into play here include existing personal loans, credit card debts, car loans, etc.
Wait for Better Timing
Sometimes, your loan application may have been rejected because you simply haven’t been in business long enough, or you don’t reach the lender’s minimal annual turnover. If this is the case, there isn’t much you can do other than wait it out until you reach these requirements. This could be just a matter of weeks or months, especially if you’re applying with an alternative lender, who often require that you’ve been in business for just 6 months.
Don’t Put Yourself in a Worse Position
When a small business owner’s loan application is rejected, they can sometimes make a panicked decision and settle for something known as a payday loan. These are risky, high-interest loans that can easily spell the end for you and your small business.
Predatory lenders may also offer something known as a title loan, where the applicant is made to provide the title of their vehicle in exchange for a small cash loan. This loan is often just a fraction of the car’s actual worth and places the applicant at risk of losing their means of transportation. Trust us, you can do better. This is why it’s always best to wait it out and fix what was initially holding you back before you apply for another business loan.
As you can see, having a rejected application for a small business loan isn’t the end of the world. In fact, it’s certainly something you can recover from using the steps outlined above. Then, when the time is right, you can hopefully re-apply for the business loan with greater success. Best of luck!
Author Bio: Melanie Doncas is a content writer for Lumi, an Australian fintech specializing in unsecured business loans. She is passionate about helping SMEs, entrepreneurs, and startups to grow their business.