You finally decided to take the leap of faith and start a business. You’ve done the research, developed a business plan, registered your company name, and even opened a banking account. While you’ve saved up a bit of cash on your own, it’s not enough to cover startup and operational expenses. So, you decide to apply for a loan to help give you the jumpstart you need. The only problem is, you got denied.
You’ve tried a few different lenders, and none of them are willing to give you a loan. Unfortunately, you’re a liability that no one is interested in taking a risk on. Now what? While you might be tempted to give up, don’t do that just yet. Consider trying these solutions first.
Find Out Why
The first order of business is to figure out why you were turned down for a business loan. Lenders should provide you with this information at the time of denial. Some will give you contact information to request further details. Review this information in detail to determine exactly what you need to improve.
Build Or Improve Your Credit
Lenders review your credit history and score to determine your level of financial responsibility and risk. A report riddled with late payments, collection accounts, and high-balance credit accounts reflects negatively. It says that you’re not responsible, and the likelihood of you repaying a loan is slim. For those with no credit history, lenders don’t have anything to evaluate. Therefore, you’re automatically considered high-risk.
Making timely payments, paying off old accounts, and keeping accounts at a reasonable balance are proven ways to turn things around. If you don’t have any credit, you can try applying for a store, gas, or secured credit card to build your credit. If that doesn’t work, consider getting a credit builder loan from agencies like Western Shamrock.
Reduce Debt or Increase Income
No or bad credit isn’t the only reason that applicants get turned down for a business loan. Sometimes, you simply have a high debt-to-income ratio. Lenders have to assess your ability to repay a loan. However, if you have too much debt on your hands, chances are you won’t be able to keep up with your financial obligations.
The best solution is to reduce your debt. You can reduce household expenses and contribute money to paying down high balances, look into debt consolidation, or try and negotiate settlement offers with lenders, creditors, and service providers.
Sometimes, reducing your debt in a few months isn’t possible. For example, if you have a mortgage and student loans, these aren’t going away overnight. In this case, increasing your income could provide lenders with the proof they need to approve a loan. You can get a part-time job, work as a freelancer, or find a side gig like ridesharing or delivering groceries.
Ask For Less
If you don’t have any credit or simply have a high debt-to-income ratio, lenders may not want to give you significant amounts of cash. You can reduce your risks by asking for less money. Although shaving a few hundred or thousand dollars off decreases how much you have for your business, it’s better than no money at all.
Consider a Co-Signer
If you have a business partner, significant other, friend, or family member that believes in your dream, perhaps they wouldn’t mind co-signing a loan for you. Lenders are more inclined to approve loans when they know there are two people responsible for repayment. Whoever you ask to help you, ensure that you repay the loan as promised to avoid ruining their credit or your relationship.
There’s nothing worse than having a vision, doing the groundwork, and then getting turned down when you’re ready to move forward. If you’ve been denied for a business loan, don’t let it discourage you from your goals. Simply try some of the solutions above, wait a few months, then try applying again. Chances are you’ll get the, yes you were looking for.