A business loan is often the recourse of small businesses in need of a financial boost. While small business loans in Nashville are backed by the local government and nonprofits, there’s no guarantee that your application will always be approved. This is why, in seeking a loan, it’s always best to work with your CPA firm so you can get proper guidance and increase your chances of approval.
That said, getting rejected for a business loan doesn’t mean the end of the road for your endeavor. You can always re-apply either with the same lender or a different one. But before rushing off to send your application, you need to take some steps to boost your eligibility for your next attempt.
Here’s a guide on the best way to move forward.
1. Find out why your loan application was rejected
Typically, you will receive a letter from the lender explaining why your loan application was denied. While you should seriously consider what’s in the letter, it would be best if you also seek answers directly from the lender. If they pulled your credit, they are obligated to give you the reason for the rejection as well as the score they used to determine qualification.
The common reasons for rejection include:
- Low credit score
- Poor ratios
- Not enough time in business
- Insufficient collateral
- Cash flow deficiencies
- Incomplete documents
- Too much debt
- High risk business or industry
2. Improve your finances
If a low credit score or other financial indicators are the reason for your loan denial, work on getting your finances in better shape. Get a copy of your credit report and check for errors that may be pulling your credit score down. Identify the factors that may have a negative impact on your credit score, such as a high Debt to Income ratio, insufficient credit history, and past due balances. Work on improving these factors to raise your credit score and improve your ratios. Some of the things you can do include:
- Catching up on your payments
- Paying your debts on time
- Improve your DTI ratio by paying off some of the highest balances first
- Lower your credit utilization
- Have a healthy mix of credits that you can manage to pay on time
3. Improve your cash flow
If you’re having cash flow problems, find a way to better understand your business’s cash positions and take steps to achieve a better balance between your spendings and earnings. Look into ways to convert your inventory into cash, perhaps through promotional activities. You can also be a bit more firm in collecting outstanding debts from customers, or perhaps plan supplies replenishment more carefully.
4. Look for alternative lending options
Lenders use different underwriting standards in evaluating loans, so while you may have been denied a loan by one bank, you may get the nod of another. But in talking to the next potential lender, be honest and transparent about your circumstances.
You may also consider other financing sources such as angel investors and venture capitalists, direct online lenders, credit unions, marketplace lenders, and so on. You may have to deal with higher interest rates, shorter loan terms, or a higher collateral so make sure to weigh your options carefully.
Before taking the next step, however, make it a point to talk to your CPA and ask them for guidance and professional advice.
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