What to do if Your Business Loan Was Rejected

Thanks for choosing our blog! In this post, we’ll be discussing what to do if your business loan application was rejected. Keep in mind that rejection doesn’t mean you’re doomed – there are many ways you can still succeed with a business loan rejection. First and foremost, understand why your loan application was rejected so that you can make necessary changes to your business plan. Next, research alternative financing options so that you can continue exploring business opportunities. And finally, stay positive and motivated – rejection is only a temporary setback, and eventually you’ll find the right business loan that will help you grow your business. Thank you for reading!

What percent of small business loans are approved?

In 2021 according to the SBA, over 61 thousand loans were funded totaling $44 billion dollars. According to a report provided by Zippia.com, just about 49% of SBA applications are approved with only 25% of those that apply to big banks get approved. Remember, the approval process may differ from lender to lender but in general big banks are the most conservative, especially with SBA loans, regarding requirements to be approved.

What is the average business loan amount?

According to statistics, large national banks’ non SBA loan amounts average $593,000 per loan, local regional banks average $146,000 per loan and alternative lenders between $50,000 to $80,000 average per loan.

Find out why your business loan application was rejected

If you’ve been rejected for a business loan, oftentimes it can be a simple matter that was overlooked or credit issues that can be fixed. Make sure to review all the documents your bank sent and correct any mistakes before applying again. If you’re looking for help, consider speaking with a funding advisor with your lender. They can help you understand the lending process and may be able to point you in the right direction. In the meantime, don’t give up! There are a few things you can do to troubleshoot the situation and get your business loan application approved.

Deficient application

There are many things you can do to improve your business loan application. Make sure you have all the required information and documents , answer all the questions asked in the application form accurately, and review your application again for any errors. Oftentimes it can be as simple as inputting the wrong start date or Tax ID by one wrong digit.

Short track record

One of the most common reasons for decline is short time in business. Generally industry standard is any business operating for less than 2 years is considered a startup. Most lenders require tax returns so it is essential to have a mature business in order to provide these documents for analysis. Some alternative lenders do not require tax returns at all and only require only a few months in operation with established revenue. Be sure to ask your lender what are the requirements on the loan you apply for, there are many different loan types and many different lenders each with their own requirements.

Insufficient collateral

Depending on the loan you apply for, especially an equipment loan, collateral is one of the first items to be reviewed. Some assets are too old, dealer or seller are not credible or as simple as the asset not being appraised at quoted value. Another common issue is if the borrower asset is still encumbered by a lien of an old loan that has been paid off, some States do not update public records consistently so be sure to check this for any errors.

Risky industry

Some legal businesses are deemed risky for multiple reasons, these include Gambling, Government-Owned, Lending Loan Packaging Firms, Multi-Sales Distribution, Nonprofit, MLM, Real Estate Investment firms, Religious, and Speculation-Based industries such as Gas and Oil. This is because loan applications in this sector are more likely to default or operate in gray areas. So make sure you have all these things sorted before applying for financing – otherwise your chance of getting approved might not be too great. Bear in mind that there are other ways businesses can get funding aside from traditional bank loans – such as alternative lenders. If trying out any of these methods doesn’t work out then don’t give up! There are many business people who have succeeded with creative financing schemes over time.

Surprising reasons why business loans are denied

Business loan rejection can be a frustrating experience. Often simple overlooked matters can make all the difference, read on for more information.

You have too many UCC Filings

When lenders provide loans they file liens against your business assets to protect their interests. Oftentimes some lenders may need to update and remove these liens since loans have been paid off, or simply they may subordinate behind another lender. If a lien is filed it tells lenders you have a loan outstanding and may impact the new lender on collecting on debt if the need should arrive via a default. For example, if your business has one valuable asset, a 2nd lender would not be able to secure their interest if the only asset is already secured by another lender. There are also different types of liens, so be sure to ask your lender if any current liens contributed to your decline and ask for details so you can have a chance to contest it.

You don’t have a separate business bank account

Business loans are very different from personal loans, it is not only essential to separate your business finances from your personal finances, but in many States it is a major compliance issue for lenders. The easiest explanation is that a business loan funded to a personal account may be construed as a personal loan. Make sure that your business account, even if personal, has your business name stated on the account. Many banks can add a DBA (doing business as) on your personal account, especially if you are a sole proprietor.

5 Steps to Take After Being Rejected for a Small Business Loan

Rejection can be tough to take, but it’s not the end of the world. In fact, there are a few steps you can take to try and get your business loan approved again. First, re-evaluate your qualifications – make sure it’s strong enough to justify an outside lender’s investment. Next, determine if there are any changes you need to make to your company structure or operations. If all else fails, check with other lenders to see if anyone is willing to offer you a better deal than the one you received from your previous lender. Keep at it – persistence is key in finding the right solution!

1. Ask the Lender Why They Rejected You

Asking the lender why they rejected your application, you can then get a better understanding of their reasons and hopefully move on to fix the issues causing a decline or find other financing options. Sometimes it is just a coincidence that your loan application was declined – don’t be discouraged! Lenders make lending decisions quickly without conducting much research so speak to a loan expert for more help. Always keep in mind that small business loans are rarer than personal loans but there are still ways to secure one.

2. Check Your Personal and Business Credit Profiles

Before you start looking into loan options, it’s important to first check your personal and business credit ratings. This will help determine qualification for a loan as well as identify any potential risks that come with taking on such a financial commitment. Alongside personal credit rating, you can use online tools to get an idea of your business credit score too. Knowing this information would help in understanding the lending criteria and make sure that you are fully aware of all terms and conditions associated with the loan offered to you. In case there are any discrepancies in your application or history, getting independent verification would be advisable before making a decision

3. Make Sure You Have All Your Documents Correct

One of the most important steps in getting funding for your business is to make sure you have all the required documents. This includes identification, tax information and proof of revenues such as bank statements. Make sure that everything is accurate and up-to-date, especially your contact details – you don’t want any trouble when it comes time to apply for a loan! There are plenty of small business loans available out there so simply choose the one that best suits your needs and goals. Keep a positive attitude no matter what challenges come up; after all, this isn’t easy work by any means!

4. Change lenders and loan tactics

Talk to other small business lenders in order to get their opinion on the matter, compare loan options and their requirements. You might be able to find some lenders who are more sympathetic towards small businesses than your previous lender was. Additionally, look into alternative loan options such as merchant cash advances that may have easier qualifications that fit you better.

5. Explore other financing options

If you’re still determined to start your business even though you haven’t been approved for a loan, there are other options available. For example, credit cards can be an option – but make sure you understand the terms and conditions first. Similarly, personal loans may also be of interest to you as they come with lower interest rates than business loans do. However, before applying for one it is important that you have all the required documentation ready – this will streamline the loan approvals process considerably. Don’t give up too soon – keep trying until you find a lender who can help your dream become a reality!

Educate Yourself on Alternate Funding Sources

If you have been declined by your big bank, don’t give up! There are many funding options available, so do your research to find the best one for your business and financing needs. Alternative online lenders are generally private companies and have their own capital to use at their discretion. It’s important to understand the pros and cons of each lender and their loan options before making a decision. Once you have a better understanding of the different financing options, it’s time to educate yourself on the business loan application process. This will help you make an informed decision and strengthen your application.

Merchant Cash Advance FAQ

The easiest funding option to qualify for is a Merchant Cash Advance (MCA). Common uses of a MCA are business loan refinance or consolidation, purchase of inventory or equipment. Common questions about MCA are below, be sure to reach out to us if you have any further questions.

What is a Merchant Cash Advance (MCA)

The term “merchant cash advance” refers to a financing option for small businesses that is provided by private investors. A MCA funder provides you with an upfront lump sum of money, plus a fee, using a percentage of your debit and credit card transactions. If you do not have significant credit or debit card processing, some investors may still advance you a lump sum based on your historical and projected revenue as a purchase of future receivable. MCA are not loans since they are typically based on an advance of future receivable.

How merchant cash advances work

Merchant cash advance repayments can be structured in two ways:

Percentage of debit/credit card sales

This is the traditional way an MCA is structured, in which a merchant cash advance provider automatically deducts a percentage, called a split, of your debit and credit card sales until the advance is repaid in full. Payments are direct from your payment processor, for example if your terms are 10% split then if a $100 transaction is processed your processing company sends you the net amount of $90 and the split of $10 directly to your merchant cash advance provider. This payment method is the most flexible as it is based solely on your transactions, great for consumer facing businesses like restaurants that accept the majority of their payments in credit or debit card transactions.

Merchant cash advances are unlike other sorts of business financing in that they don’t have set repayment schedules. Repayment periods are determined by your sales, and they may vary from three to eighteen months; the faster you repay the loan, the higher your credit card earnings.

Fixed withdrawals from a bank account

If you do not process enough credit or debit card transactions, then your business bank account may also be used to withdraw money from merchant cash advance firms. In this scenario, regardless of how much you earn in sales, your account will be charged a set amount each day or week. The set payment amount will be determined based on an estimate of your monthly income. This sort of MCA repayment structure is more suitable for firms that don’t rely heavily on debit and credit card sales since it allows you to compute on average how long it will take to repay the advance based on the quantity borrowed.

Conclusion

It can be tough when your business loan application is rejected, but don’t give up just yet. There are many reasons why a loan application may be rejected and it’s important to know what to do if this happens, there are also options for other funding options which you may qualify for. We hope this blog clears up some misconceptions or gives you an idea on how to re-apply, if you still are in need of assistance don’t hesitate to contact a funding advisor with AMP Advance.