Business & Finance

Business Loan Application Declined? Turn Table With These Ideas

Within every successful merchandising story lies a chapter of great funding and huge capital. However, not all entrepreneurs are financially strong. Especially the start-ups struggle to sustain themselves. That’s where Business financing is inevitable when the idea is to keep your venture up and to run. But there will be times when your loan application will be rejected repeatedly. Want to know the probable causes behind the same? Business Loan Application Declined? Turn Table With These Ideas

Probable Causes Behind Rejected Loan Application

Applying for a business loan is an anxiety-inducing process in itself. Often, people keep their fingers crossed after applying for a loan. But if that application gets rejected after so much hassle, it’s heart-breaking and strenuous.

Here are a few significant reasons, which may be stopping your application from getting approved by the lenders –

  • You haven’t have traded for long

Even if you do not consider your business to be a start-up, lenders may not always believe in your words. In the first few years, you’ll remain under scrutiny. If you can manage to survive these years, it will be easier for you to get a loan.

At the beginning phase, you have to show the history of trading for a certain period of time. Also, read about the eligibility criteria for qualifying as a start-up before establishing a relationship with the lenders.

  • Low turnover

Better turnover indicates your company is in a healthy condition and flourishing well. Normally, lenders gauge turnover to understand the status of your business, and accordingly, judge whether you are eligible for start-up business loans in the UK. However, the range of time they look at will vary between lenders.

  • Poor credit rating

A credit score is one of the top factors in getting business finance. In many instances, lenders use this rating to identify your habit of using credit in the past. There are a few things that can negatively impact your credit score. They are –

  • Being late with your repayments
  • Borrowing too much money
  • Errors on a credit report
  • Don’t ask for a huge amount.

Often, lenders disagree with paying a huge amount as a loan if you are borrowing for the first time. It is because of the trust issue. Initially, the lenders will hesitate to pay you that huge amount, but if you can gain their trust, you can expect the amount.

The amount that the lender is comfortable in giving you will depend on a variety of things, including your credit score, time in business, and turnover.

The tenure for which you want to borrow the money will also make a difference.

  • Improper planning for using the funds

Sometimes, most lenders tend to understand the purpose of borrowing. Whether you want to use it for purchasing inventory or equipment or recruitment will largely influence the approval of loan application.

Some might have restrictions on the way you will use the funds. So, be careful while issuing the loan. If your purpose doesn’t match the eligibility criteria, your application may get rejected.

  • You don’t have any collateral.

Lenders may ask you to provide an asset at the time of applying for a loan, especially secured loans. It serves the purpose of reassurance, just in case you default on your loan i.e. you fail to pay the loan amount within the due date. However, if you cannot provide the collateral, you may not get secured loans. In that case, you have to opt-in for unsecured business loans.

Rejection of loan applications is distressing at times. You may end up in debt. To make sure you never face a circumstance like that, you have to learn a few techniques to make things in your favor.

Best Ideas To Ensure Your Loan Application Is Never Denied

Once your loan application is denied doesn’t mean you cannot apply once more. But the next time you should take a smarter approach to deal with the former chaos.

There are times when entrepreneurs say, “To save my business, I need the money now as business financing”. It is when you have to play the other way round to get loan approval quickly.

You may consider the following ideas for a better result this time –

  • Try to understand the reason for a rejection

There can be several different reasons behind your loan rejection, such as –

  • Collateral issues
  • Less than 2 years in business
  • Debt to income ratio
  • Poor credit rating

Speak to the ender who have rejected your application, and hopefully, you’ll understand the exact reason behind the rejection.

Once you determine the real cause, wait until you catch up with those requirements before approaching that lender again. That way, you will decrease the chance of your loan application being declined.

  • Improve your credit score

At the time of business financing, lenders evaluate your personal credit scores as well as business credit history. If both reflect a good score, they nod on approving the loan application. But with a low, poor rating, you will not have any other option than to improving the score.

In order to refine the score, you may consider repaying the dues on time. Otherwise, you may also try applying for credit cards in the firm’s name and working with vendors who report payments. Besides, avoid using personal loans for business funds as they do not contribute to your business credit history.

  • Find a flexible lender.

The internet today offers a thousand names of lenders. So, you’ll have the option to choose between lenders. If your application is declined by one, try to find another one who will be more flexible and receptive in terms of lending.

If you can research well, you can find a few names that will show interest in working with start-ups. These lenders will be quite different from the traditional lending institutions, and they are expected to offer loan products better-fitted to small businesses.

  • Apply for a different loan product

Is your business struggling will venture capital or angel investors? A term-loan is definitely not your best bet in that case. Instead, find a lender who can help you with a smaller line of revolving credit. These are short-term secured/unsecured loans, which are easier to qualify for.

A merchant cash advance is also a possible option. You can leverage your firm’s future credit card receipts to secure this type of loan product.

  • You may consider an SBA Loan.

Government has its own set of loan options for start-ups and small businesses. The SBA-term loan is one of those unique opportunities that you can avail yourself. It supplies emerging entrepreneurs with the funding they need.

However, it is essential for owners to know that an SBA loan still requires a good credit score. The applicants must have at least 140 out of 300 to qualify for a loan.

  • Take a break from applying.

If you see that your loan application is getting declined repeatedly, then there must be a serious issue involved. In that case, you may take a short break before applying for the next loan. Sometimes, waiting is the best decision. In that period, you should focus on other things like improving your sales, products, services, etc. Also, the time in your business will increase automatically in that span.

All of the above ideas are proven in different instances. You may try any of these, depending on your situation and business status.

The Final Words

Improving the chance of loan approval is not critical if you know the tricks hidden behind it. With a good credit score and a longer time in business, it will be easier for you to get the funds you need. Just make sure you know how to play based on the situation. And if you don’t, this article can help you with the right ideas. Give it a read for your own benefit!

Also read: Top 5 Benefits of Having a Personal Loan App on Your Mobile Phone

Ailsa Adam

Hi all, Ailsa Adam here and my readers refer me as the fond of writing. I am an author and writer for the last 11 years, and known for writing quality blogs and articles. I have covered almost all the topics of the UK finance. I am also working as Senior Loan Executive at AoneFinance, an online lender in the UK marketplace.

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