What to Do if You Can't Get a Business Loan

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For entrepreneurs, oftentimes coming up with the ideas to launch and grow their business is the easy part. It’s finding the money to make it happen that’s difficult. For many small business owners, obtaining a loan from a bank or traditional lender is seemingly impossible, leaving them scrambling to find the infusion of capital they need. Luckily, not getting a business loan doesn’t have to spell an end to your business. Here’s what to do if you can’t get a business loan, and why being turned away isn’t always the end of the world.

Common reasons to be denied a small business loan 

Before delving into alternative means of raising cash for your business, it’s worthwhile to explore exactly why you were turned down for a business loan in the first place. While many entrepreneurs may throw up their hands and give up after being denied a loan, others realize the problem that prevented them from gaining access to a line of credit may be solvable later on down the line. If you don’t know why your business was rejected, you can’t hope to strengthen your weak points and return later. 

Lenders look at several factors when determining if you and your business are worthy of a small business loan. The data is used to paint a picture of your creditworthiness and ability to pay back the money borrowed. Lenders don’t want to take on too much risk. So if they feel the risk is too great, they will reject your loan application. The reasons can vary from one lender to the next, but these are some common reasons for a loan rejection: 

  • Poor credit score: Your personal and business credit scores have a direct impact on loan approvals. The lower your credit score, the more difficult it is to obtain funding. Some lenders that work with small business owners that have bad credit. However, they often charge a high interest rate. 
  • Lack of collateral: Many lenders want to see that you have skin in the game and therefore require business or personal collateral. That could include paper assets, such as stocks and bonds, or property assets, including buildings, equipment and vehicles. If you don’t have enough collateral to back the loan, you could be turned down. 
  • Too much debt: Lenders look at your debt-to-income ratio to determine your creditworthiness. Lenders want the ratio to be In the 30% range, but some will go as high as 40%. If you were turned down because of your debt-to-income ratio, pay down your debt and reapply. 
  • Not enough cash: To lower the risk of defaulting on your small business loan, lenders typically want to see enough cash in the bank to cover several months of expenses. It could be anywhere from three to six months depending on your lender. 
  • Not enough years in business: To be eligible for a business loan, many lenders require to be in operation for a set amount of time. For some lenders, it’s three months, while for others it may be two years. They want to ensure you won’t borrow money and then go out of business three months later.   

FYI: If you were turned down for a bank loan, don’t despair. We found through our reviews of the best business loans that there are plenty of alternative lenders willing to lend you money.

How to improve your chances of landing a bank loan 

To increase your odds of getting a bank loan, you have to improve how you look in the eyes of the lender. That isn’t too hard to accomplish if you are disciplined, cost-conscious and willing to sacrifice.

Editor’s note: Need a loan for your business? Fill out the below questionnaire to have our vendor partners contact you with free information.

1. Improve your credit score. 

To get a bank loan, you typically need a credit score of at least 680. If yours is lower than that, work to improve it. That means paying bills on time, reducing debt outstanding and not opening new lines of credit. The longer you do that, the more your credit score will improve. It may take a few months or longer, but hopefully, you’ll be in a better financial position to get a loan.