Overcoming Rejection: What to Do if Your Small Business Loan is Rejected

small business loan application

You just came up with your best idea yet! Now all you need is funding.

Excitedly, you check the status of your small business loan application—only to realize it has been rejected. 

But don’t despair! Here are 6 tips to help you jumpstart your business and improve your eligibility for small loans:

1. Improve Your Credit Score

Bad credit may have been the reason your small business loan application was denied. 

If this is the case, then you want to do everything you can to improve it before reapplying.

One way to help your score is to open a small business savings account. Not only will this help improve your credit, but it will help keep your business more organized.

Another simple thing you can do is to make sure all of your current loan payments are getting paid on time. 

2. Have Business Partners

There are many benefits from beginning a business with a buddy. 

For one, your business will have more cash to start out with, half the amount you would have originally needed in start-up costs.

If your small business is already established, having business partners can still be beneficial since financial responsibilities are shared, and new ideas are more readily available.  

Additionally, when you work with partners, you can register and receive the full benefits of being an LLC.

This way, if someone sues your business, your personal belongings will remain safe and untouched.

In short, working together with others can give your small business less liability and more support.

3. Save Before You Start

A small business loan doesn’t have to be your only solution. In fact, 1/3 of small businesses start out with less than $5,000 in funding. Some industries will require even less.

Consider taking out a portion of your monthly salary and setting it aside in a savings account until you reach the amount you need.

Just because you don’t get approved for a loan, doesn’t mean you can’t start at all! You just might have to start a little smaller than you planned.

But that’s ok! The best things often take a while, and by establishing a good savings system, you’re setting your business up for success in the long run.

4. Go Ahead And Start Soon

You may think you need a small business loan to start out. After all, how else are you going to get equipment and employees?

However, if you applied the advice from tips two and three, you just might be able to start as you are. And if that is so, go ahead and go.

A business that has been open for 2 years is more likely to get a small business loan than one that has just begun.

Starting soon will also give your business more flexibility because instead of using small loans to get started, you can use them to expand.

5. Apply For A Small Business Grant

A grant is one of the best things that can happen to your business. Like a scholarship, they offer funding to help you achieve your dreams. 

Grants typically don’t need to be paid back, making them a great alternative or supplement to small loans.

Government grants usually go to non-profits. However, those aren’t the only ones you can find. 

Small business grants are offered for numerous reasons; search through reputable grant websites to find the one right for you.

Now granted, the grant application process is not easy; some applications may require a lot of paperwork and essay questions. 

If you’re not a writer yourself, consider getting feedback from friends who write well. Have several people read through the written portions of your application to ensure it is the best it can be.

6. Pay Off Existing Debt

A top reason startups fail is that they run out of money. To maximize your chances of success, make sure your business has maximum cash flow potential.

Before taking out small loans, consider paying off your current debt and credit cards first. 

This way, you’ll still be able to make small loan payments on time if business gets slow because you won’t be pressured to pay too many debts at once. 

Also, make sure you set up a business emergency fund to keep your cash flow consistent through the rough patches.

Paying off current debt can help maximize your business’s potential, making it more likely to succeed and last long term.

A Successful Small Business Loan Application

Your small business loan application finally got approved! Here are some questions to consider before taking out your small business loan:

  • Why do you want a small business loan?

If you want a quick way to start or expand; then small loans may be an option to consider.

However, if your business is in a financial crisis and simply in need of cash flow, look first to find and solve your underlying problem.

  • How will it benefit your business?

Before you take out a loan, you need to have a plan so your funding will achieve its maximum effectiveness.

  • Will you be able to make payments on time?

Not enough market need is another key reason small businesses fail. If you’re not getting tons of business yet, don’t take out unnecessary thousands.

Keep your small loans at a sustainable amount, rather than overwhelming.

  • Do you truly need a small business loan?

Taking on debt is not something to consider lightly. While small loans may help your business now, they can impact your cash flow as time goes on. 

Before you move forward with your application, speak to a financial expert or other small business owners who took out loans to determine if this option is right for you.

Final Thoughts on Small Business Loans

Just because your small business loan application got rejected, doesn’t mean you can’t succeed.

Don’t give up! Instead, consider this rejection proof you are truly serious about finding funding for your small business. 

We believe in you and would love to see your business succeed. Feel free to contact us on this page if you need help or have any questions!