What To Do When You’ve Been Denied Small Business Financing


Find out the steps you need to take to get financing in the future.

Whether you’re an entrepreneur looking for financing for a startup or a long-time small business owner, it can be challenging to get approved for a loan. Many applications for the U.S. Small Business Administration (SBA) loan program, traditional bank, online, and other loans are rejected for many reasons.

If your loan application isn’t approved, you can improve your chances next time or secure business financing from another financial institution by following a few key steps.

  1. Figure out why your loan application wasn’t approved.
  2. Check your business and personal credit profiles.
  3. Get your documents cleaned up.
  4. Learn about alternative funding sources.
  5. Reapply for business loans.
  6. Never give up trying.

1. Figure out why your loan application wasn’t approved.

Trust us. There are countless reasons why small business owners aren’t approved for loans. Many are disapproved several times before scoring one.

The important thing is to find out why you were rejected. In many cases, it has nothing to do with your creditworthiness. Instead, it relates to the preferences of who the financing company wants to lend money to. Or you applied for the wrong kind of loan.

Some common reasons small businesses aren’t approved for a loan include:

  • The lender doesn’t provide funding for your industry.
  • Paperwork is incomplete.
  • The type of loan you applied for can’t be used for the business needs you require financing for.
  • You have a low credit score.
  • Your business hasn’t been in operation long enough.
  • You may be unable to put up the right business assets to back the loan or enough collateral.
  • You might not have the assets for a personal guarantee.
  • Your credit history isn’t established enough.
  • There is an aspect of your business the lender isn’t comfortable with.
  • Current economic conditions don’t make the financing attractive to the lender.

When you’re rejected for any business financing — from a credit card to a short term loan — you’re informed in writing why you were denied. Once you understand, you can make changes that will likely get you approved in the future. You may need to:

  • Improve some parts of your operation to make you a more attractive loan prospect.
  • Apply for loans from suitable types of providers.
  • Be in business longer or improve your personal and business credit scores.
  • Identify the right collateral or make a personal guarantee.
  • Improve your documentation.
  • Apply for the right kind of loan for your specific needs.

Doing these things will make it more likely that you’ll get the financing you need in the future.

2. Check your business and personal credit profiles.

Your business and personal credit scores majorly impact whether you get approved for business financing.

If you are rejected for a small business loan, your rejection letter will likely include your credit score. If it seems lower than you think it should be, request copies of your personal and business credit reports from the three credit bureaus — Experian, Equifax, and TransUnion. Check to see that they all have the correct information.

If anything seems wrong, contact the agency to get errors corrected. The credit bureaus have procedures you can follow to get the mistakes fixed. You owe it to yourself to do so because you shouldn’t be penalized for something you didn’t do.

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Personal credit scores are negatively impacted by things like failing to pay your bills and loans back on time or using too much of your available credit.

Several factors impact business credit scores, including:

  • Your payment history
  • Length of time in business
  • Outstanding debt
  • Company size
  • Industry risk

If you have poor credit, you can improve it by:

  • Paying your vendors and suppliers on time
  • Opening credit card accounts and paying your balances off regularly
  • Keeping your debt and credit utilization low.

Ultimately, it’s essential to keep an eye on your personal and business credit reports. By doing this, you can ensure that there are no mistakes on your reports and that you meet lenders’ score requirements before applying again.

3. Get your documents cleaned up.

Even if your financials are perfect, If you can’t prove it to a lender, you won’t get approved for a loan. You must provide the proper documentation, including bank account statements, a current business plan, financial statements, tax returns, and more, to a lender that proves your business is financially sound.

When you’re rejected for a loan, review the documentation you filed with your application for small business financing. If everything is complete and in order, be objective and figure out what your documentation conveys about your business finances. You may find that your bank statements may be showing a less healthy cash flow than you thought. Or your future projections may not seem as sustainable as you think.

If incomplete or missing documentation triggered a business loan rejection, make sure that all your paperwork is in order before you apply for another loan. If your application was rejected because you don’t meet the financial standards of the lender, there are two things you can do:

  1. Take steps to improve the weak areas of your business finances, including a poor credit score.
  2. Find another lender that is more likely to approve you. In many cases, online and other alternative small business financing companies have lower approval requirements than traditional banks. Be aware that these easier loans usually come with higher interest rates and less attractive repayment terms. Still, they could get you the money you need to take advantage of an opportunity, obtain working capital, improve cash flow, grow your operation, or get through an emergency.

If your business finances are in order, you owe it to yourself to have the documentation you need to prove it.

4. Learn about alternative financing sources.

If you’ve been rejected for a small business loan from a traditional lender or an SBA loan, alternative funding sources, including online lenders, could be better financing options for you.

In most cases, alternative lenders require that you complete an online application for a small business loan and upload the necessary documentation. Once you do, you could receive a loan approval decision within hours or less. In many situations, you could receive your loan money in your business bank account in as little as one business day.

You could also consider applying for more straightforward types of funding, such as a business credit card or business line of credit, which is similar to the credit line you may have on your mortgage. You only have to pay the money back on your business line when you use it. Eligibility for these types of financing is relatively easy.

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If you need funding for business equipment or machinery, equipment financing is usually easy to get approved for because the funding is backed by the equipment itself, which means you’ll have to return it to the supplier if you ever can’t pay the money back. The same is true about business real estate loans, which are backed by the properties they’re used to purchase, much like a home mortgage. Loan denial rates for real estate loans are relatively low.

You could also apply for funding through bootstrapping, crowdfunding, merchant cash advances, and invoice financing.

What’s important is that you read the fine print of any funding before you agree to it.

In addition, online lenders are typically more flexible than banks with their lending standards, and some cater specifically to new businesses. You may be able to find an alternative lending solution that fits your needs while helping you grow your business.

5. Reapply for business loans.

While some aspects of the business loan application process are out of your control, once you fix things, you can reapply for a loan, and rest assured, knowing you’re more likely to be approved the next time out.

6. Never give up trying.

Just because a financing company rejects you for a small business loan doesn’t mean that your company isn’t viable and that it can’t be successful. Consider your loan application rejection as a learning opportunity. Take time to figure out what caused your rejection and determine what you can do to improve those things and avoid the issues in the future.

  • If you made simple documentary mistakes, fix them and refile your application as soon as possible.
  • If your business isn’t well-positioned to get a loan from a large bank, find an alternative lender that wants to support companies like yours.
  • If your credit scores are too low — or your credit reports are inaccurate — take steps to improve things.

No matter what triggered your loan application rejection, always know that there’s a path to getting back on track to getting financing in the future. You owe it to your business to get the funding you need to take it to the next level.

In the end…

Being denied a small business loan isn’t a great experience, but it’s a fairly common one. It shouldn’t stop you from seeking financing from other or alternative sources. Use your loan rejection as a tool to learn how to better position your business for success in the future. Entrepreneurs don’t let little things like a loan rejection keep them from achieving their dreams. The best path forward is to dust yourself off, fix what needs to be fixed, and find a lender willing to work with your company now and in the future.

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