How to Cope When Your Lender Says “No”

You have worked for weeks on a business proposal to bring a new product line to your company. You have carefully updated your business plan and secured all the necessary financial documentation. Now, several days later, you are sitting in front of the loan officer and despite all of the preparation, your application for a business loan is denied!

Being rejected for a loan can be an unpleasant shock, but with a little time and effort it is possible to rectify the issues that caused the rejection. First, you need to determine exactly why your loan application is being turned down.

The following is a list of common reasons why a bank may choose to deny a loan as well as some ways to handle it:

  • Your business is under-capitalized. This is generally due to an unfavorable debt-to-equity ratio. First, you should try to include any outstanding notes payable to the company and list those as equity. Additionally, you can use the funds in your savings account and either invest it in your company or pay off any debts. Finally, you can try to secure a second mortgage, liquidate investments or even cash-in the value of your life insurance policy.
  • Your company has not yet made a profit. Without a solid track record of profits, a lending institution may be unwilling to risk giving you a loan. In this case, you can create a more accurate picture of your financial situation by providing comprehensive income and cash flow statements You should also provide a detailed proposal of how you plan to make a profit in the future. Include a breakdown of the profits that you hope to achieve once you have secured the loan.
  • The amount requested is too high. Lending institutions will often minimize the risk of granting a loan by reducing the principal so that it matches up to your collateral. Here you have a few options. First, you can reexamine the current net worth of your assets. If the determined value is unchanged then you could offer other items up as collateral. Finally, you can always reexamine your proposal and try to reduce the amount of money that is required to complete your venture.

Many small business owners have successfully avoided the arduous business of applying for loans by utilizing business cash advances. Business cash advances are based solely on the purchase of future credit card transactions and therefore do not have interest charges or obligations for repayment.

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