A loan denial can be devastating, especially when you’re counting on it to get your business off the ground, or your business is in the next phase of growth. Luckily, there are things you can do after you’ve been denied a loan.
Get an Explanation as to Why Your Loan was Denied
Lenders are generally glad to give you a reason. In some cases, they are even required to provide certain disclosures. Quite often, you’ll be denied credit for reasons such as:
•Insufficient income, or;
•Problems with your credit.
Review your Credit Score
If your credit score is the reason behind your loan denial, you should have it analyzed. You can do it yourself or you can hire a professional. Once you have the report in hand, you’ll want to look for any red flags.
Consider seeking finance elsewhere
With some patience and a little research, you’ll find that there are other financing options available. How you drum up cash for investments, and where you look for cash, depends on your company and the type of financing needed.
For example, there’s a huge difference between a local retail store looking to finance a second location, and an individual investor looking to add to their real estate portfolio.
To land alternative financing after banks turn you away, here are 5 ways to do so.
Crowdfunding is an example of how the Internet can be an amazing place. Basically, you create an online profile and pitch your business idea or product on a site like Kickstarter. Unlike conventional lending options, crowdfunding is free from a lot of the red tape.
Crowdfunding as a financing option is usually a big gamble. Some businesses may still come up short of cash and need to consider other lending alternatives. Others may find that they accumulate an incredible amount of support from the public.
Besides Kickstarter, there are also other crowdfunding sites to choose from.
2. Business Credit Card
A business credit card, though not necessarily a “loan” in the conventional sense, can be helpful in getting you financing. A credit card is intended for use by a business rather than for an individual’s personal use.
As their name suggests, these cards help build your business credit so that you can qualify for credit increases or new cards. If you credit score isn’t favourable, there are secured credit cards that can help you get a business credit card.
3. Merchant Cash Advance
Merchant cash advance is another option for business owners seeking alternative funding. It allows a business owner to obtain an advance of the funds regularly flowing through the business’ merchant account.
You can qualify for a merchant cash advance if you meet the following criteria:
•You’re seeking at least $10,000 in funds.
•You currently accept credit cards and process at least a few thousand dollars per month.
•You’ve been in business for more than 12 months.
However, some cash advance companies have additional requirements. Be sure to research them before you request this kind of service.
Microlenders help small businesses secure much needed credit, even when they have bad credit. Usually, they’re non-profit organizations. They don’t conform to any uniform regulation. Instead, each has their own set of rules and requirements.
For example, a microlender like KivaZip works within a conglomeration of sponsors, lenders, and investors to extend loans that are community-based. Other microlenders, like Accion, provide much needed financial assistance to small businesses with bad credit.
The catch? Usually, these lenders only provide financial help to small businesses for a sum up to $35,000.
5. Venture Capital
Venture capital is financing that investors grant to small businesses and startup companies that have long-term growth potential. Generally, venture capital comes from investment banks, well-off investors, and other financial institutions.
Despite its huge merits, the concept of venture capital is frequently misunderstood. People often accuse venture capitalists of predatory businesses practices. This is supposedly because these capitalists hardly invest in risky or entirely new ventures.
That is not the case. On the contrary, venture capitalists have a professional duty to reduce as much risk to themselves as possible. For a venture capital to be successful, there has to be a reasonable chance for the businesses to hugely profit over a very short period of time.
All in all, being turned down for a loan isn’t ideal. However, it’s important to remain positive and realise that there are other ways to get financing. You’ll be well on your way to getting your business plans back on track if you identify and review the factors that got you turned away in the first place.