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 applying again.
1. Determine why your credit request was denied
There are lots of reasons a lender might be unwilling to extend credit. These can include:
- Insufficient credit history
- No history of repaying loans
- Derogatory items on your credit report, such as late charges, liens or bankruptcy
- Lack of collateral to secure a loan
When your application for a business loan or other type of credit is denied, the lender is required to send you a denial letter explaining the reasons for the decision.
Understanding why credit was denied can help you make the changes needed to improve your business credit application and find resources that may 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 financing solutions that may better fit your business. 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 matter, they’re only part of the decision. Lenders also look at 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?
- Do you make payments on time?
- Does your business maintain a stable, positive cash flow and/or cash reserves that can support current and future payment obligations?
- Do you 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, a business plan is required. In other cases, it’s just a “nice-to- have” that helps lenders understand your business and your financing needs.
Your personal credit history also matter, especially if your business is new. Lenders may rely more heavily on personal credit history when evaluating credit risk during your business’s early stages. Find out what happens to your credit application once you apply. And if your application isn’t successful, consider improving 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 ability to repay the loan still play a role in approval. 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 your business credit profile is to start with a smaller loan and make on-time payments consistently. Your banker can help you understand what types of collateral may be accepted, recommend financing options that fit your business, and explain steps you can make to strengthen your credit profile. To learn more, explore products and services, and consider scheduling an appointment with your banker.
