Your Small Business Loan Was Denied. Now What Do You Do?
It’s the worst feeling in the world and one that small business owners dread more than any other: the loan agent at the bank shakes their head and tells that, though they’re very sorry, you haven’t been approved for a small business loan. It’s as if you’ve just received a death sentence.
1. Understand Why You Were Rejected
The most important thing you can gain from this, no matter how it pans out, is experience. Use your rejection as a primer to brush up on what factors are attractive and unattractive to banks. Don’t be afraid to ask questions like “What criteria would I have to meet to be approved?” or “What steps do you recommend I take to get approved?” Even if you end up getting a loan at another lender, the insights you can glean from the loan officers at your bank will be invaluable to you in the long run. If you don’t learn from your mistakes, future loan denials may be inevitable.
2. File an Appeal With the Bank
Most banks have review systems in place that allow applicants to appeal loan denial decisions they believe were made in error. Examine any paperwork you were given or sent along with your rejection notice in order to find out the proper department to contact. In order to make your case, you’ll need to have documentation on hand that proves a mistake was made in the underwriting process. Be sure to make copies of this evidence (especially if you have to mail it to them) so you don’t risk losing the originals.
3. File an Appeal With Your State’s Loan Review Board
Some states have dedicated Small Business Loan Review Boards, independent agencies which assist the business community. These review boards are most helpful if you believe you have been unlawfully discriminated against (denied a small business loan due to age, race, gender, orientation, etc). However in other cases, while they may lack the authority to force lenders to work with you they DO offer them a second opinion. They can also help connect you with additional services.
4. Consider an Alternative to a Small Business Loan
If your loan application was rejected because of your credit history or lack of collateral, you should know that not all funding institutions make the same demands on small businesses. If you want to avoid dealing with the restrictions of traditional bank loans, consider a merchant cash advance. Unlike a loan, a merchant cash advance is a purchase of future credit card receivables. This means that your credit history isn’t a factor. Merchant cash advances are popular with seasonal businesses or businesses that have varied monthly receipts because there are no fixed monthly payments.