Being a business owner is exciting and full of adventure. One of those adventures is finding the funding to begin, and then once started to keep the business afloat. That means looking to lenders for financing, and sometimes facing rejection. Applying for a loan can be scary, even for the most experienced business owner. But rejection doesn't always mean the end.
How Business Loans are Processed
When you apply for a business loan, whether you do it online or in person, a computer is usually making the most important decision in your life. Business loan applications are usually pages long and filled with information. Whether you sit with a loan officer, or fill out the information online, the moment you hand in those pages or press send on the keyboard, all of it is fed into a computer to analyze the stats.
There are reasons banks like the idea of an impersonal computer judging the criteria of a loan. Using computers takes the emotion out of the decision making process. A bank loan officer may be swayed by a compelling personality, or even influenced by what they think is a great business idea. Computers are not swayed by anything but the facts. However, those facts can vary in severity. Unfortunately, as good for banks as the impassionate judgments are, that means your loan may be rejected for the smallest of reasons.
What to Do When a Loan is Rejected
It's okay to be upset, but don't let a rejection mean you stop trying. Before you sit down and try to find alternate ways of financing your business, your first step is to make a personal appeal to the rejecting lender.
The Second Try is a Charm
Here is where persistence can really pay off. If you appeal a rejected business loan application, it is more often looked at by an actual person instead of a computer. The bank official will take the time to go over exactly why the loan was rejected and determine if there is any way to rectify the situation for you. It may mean getting some extra information, or explaining an inconsistency. It can even be as simple as making sure your business is listed properly in the directory services, or adding a phone number you may have forgotten to list.
Applying for a Small Business Loan Online or In Person
The mistake a lot of people make is thinking that it makes a difference if they apply for a business loan in person or online. Many business owners avoid sending in applications online, because they think the way banks handle loans applied for in person is different than those submitted online. The initial decision is made the same way either way. However, in one way, applying in person with a banking official can make a difference.
It is a little more difficult to appeal a rejection from an online business loan application. It is still possible, but you may have to look harder to find out how to go about the process of appealing an online rejection. When you apply in person at a brick and mortar bank, it's as simple as walking in and talking to the loan officer you dealt with to submit the original paperwork. That may not be the person who reviews the rejection, but they will be able to begin the process for you.
The Common Reasons Most Business Loan Applications Fail
Setting aside the possibility of extremely simple solutions to a failed business loan like missing a line in the application, or needing additional information, it may take a little longer to fix some of the most common reasons a business loan application is denied. There are many reasons a loan application can be rejected, but the most common are:
Bad personal credit Bad business credit No, or not enough, collateral Not asking for enough money Cash flow difficulties
While the above reasons may seem insurmountable, all are repairable. It may take a little time to fix most of the above problems, but once you know what a bank has an issue with, you can take the steps to change them. You will always be given a reason for a loan rejection. If you do not understand the reasons, you should request clarification. Even if you do completely understand the reason it is a good idea to ask for more information and try to get a personal response to help you avoid any small problems the next time around--and there should be a next time. Even if you are rejected for what seems like a very serious problem like bad credit, do not let that stop you.
One of the reasons above may surprise you, but banks may reject your application for a business loan if they feel that you are not asking for enough money. That's right, they may want you to ask for more. The reason is simple. If you are not asking for enough money to meet all of your challenges, your business is likely to still fail in spite of the loan they give you, and then you will not be able to pay off the money you owe the bank.
This is both simple and complex to fix. The obvious way to fix not asking for enough money is to ask for more. However, it is better to be sure you are doing it right the first time. Sometimes business owners do not ask for as much money as they know they will need, because they think banks are more likely to give smaller loans than a large one. However, not asking for enough can cast a shadow on your ability to run your business. It more likely appear as though you don't fully understand what is involved in your business, and what it will take to make a profit.
The bank's misconception will be hard to clear up. Make sure you have a well-prepared business plan that fully shows how you arrived at the figures you are requesting, and how those figures will work to make your business a success. Most importantly, ask for that amount, or show how you will find the additional funds when needed.