Learn more about why your application may have been denied, and explore resources to get back on track.
If your application for business credit was turned down, use it as an opportunity to understand why and learn how you may be able to improve your credit profile before you apply again.
1. Determine why the credit request was denied
There are lots of reasons a lender might be unwilling to extend credit. These can include:
- Insufficient credit history
- No proven ability to pay off a loan
- Derogatory items on a credit report such as late charges, a lien or a bankruptcy
- Lack of collateral to secure a loan
When a business loan or other type of credit is denied, lenders are required to send a denial letter that explains the reasons for the decision.
Understanding why credit was denied can help you make the changes needed to improve your business credit application and better use the various resources available to help. Start by scheduling a meeting with your banker to discuss the denial. Your banker can explain the lender’s perspective, suggest ways to strengthen your application and recommend alternative products or solutions. For additional support, consider reaching out to organizations like the National Foundation for Credit Counseling, which offers services specifically for business owners.
2. Understand what lenders look for
While business or personal credit scores may be key considerations, lenders also focus on other factors related to your business’s financial performance. In other words: your business’s track record matters. Learn how to create a strong credit application for your business. When reviewing an application, a lender will consider:
- Is the business viable in the short and long term?
- Are the owners making payments on time?
- Do they maintain a stable, positive cash flow and/or cash reserves that can support current and future payment obligations?
- Do they have an existing banking relationship?
You may be asked for a business plan, too. For some applications, like Small Business Administration (SBA) loans and lines of credit, this is required. In other cases, it’s just a “nice-to-have” that helps lenders understand the type and amount of financing an applicant might request.
Your personal credit history matters a great deal, too. Especially in a business’s early days, lenders may rely more heavily on personal credit history when evaluating credit risk. Find out what happens to your credit application once you apply. And if your application isn’t successful, consider taking the time to improve or rebuild your credit score before reapplying.
3. Consider secured credit options
Secured credit may be an option for businesses that don’t quality for unsecured credit like traditional business loans. By offering collateral such as equipment, real estate or inventory to back to the loan, businesses can reduce lender risk. Your business’ financial health and repayment ability still play a role in approval. Learn more about the importance of business credit and financing options that may work for your business. Learn more about the importance of business credit and financing options that may work for your business.
If your business doesn’t have an established credit history, it can be challenging to obtain financing. One way to build a positive credit profile is to start with smaller loan products and make consistent payments on time. Your banker can help you understand what types of collateral are acceptable, recommend products that fit your situation and guide you through the process of strengthening your business credit. Learn more about products and services that can help your business succeed. To get personalized advice, consider making an appointment with your banker.
