Being denied for a small business loan can be discouraging, but it shouldn't deter you from trying again in the future. Taking steps to better prepare yourself for the next time you apply for financing could be to your advantage and possibly translate to an approval.
First, think about hiring an accountant — or at the very least, using accounting software to get your financials organized. If you presented your business loan application to the lender without vital information like your tax returns or balance sheet, having these on hand can make the loan process smoother the next time around.
At the same time, having this information organized and easily accessible allows for more transparency, which helps make your business revenue, expenses and profitability understandable. These are all things a lender is going to consider when you apply for a loan, so seeing the numbers beforehand can help you gauge the overall strength of your financial position. It also helps you spot things in your financial history that could be working against you, such as late payments on other loans or an unpaid tax bill.
Checking your credit score is another vital step when securing a loan for your business is the goal. Lenders will review your personal credit history as well as your business credit score (if you've established one) to get a sense of how responsible you are in managing credit and debt. Checking your credit report makes it easier to detect things that may be hurting your score, such as credit reporting errors, outstanding liens or a high credit utilization ratio.
Finally, consider where your business lands on the profitability scale. If you have a newer business, getting a business loan will be difficult without the profits or revenue a lender is looking for. In that case, crowdfunding or borrowing from friends and/or family may be the better choice until you've put some firm numbers in the profits column. While you're waiting for the right time to submit a business loan application for debt financing, you can work on improving your margin, increasing your business revenue and trimming expenses, all of which can help to paint a more positive picture of your financial health for lenders.
SIGN UP FOR THE THRIVE NEWSLETTER