8 tips for improving your chances of securing financing if your loan application is denied.
You poured your heart and soul into your business plan and burned the midnight oil for months to get your concept off the ground. Your team, potential customers, and industry colleagues are just as excited as you are to see your new product or solution out in the world—but you just need a little more cash to get there.
If your quest for capital has yet to generate the financing you need, that doesn’t mean your business is dead in the water. Nor does it mean you should take out a second mortgage on your house or max out your personal credit.
There are a number of steps you can take to make your company more attractive to lenders and acquire that much-needed financing to help you get off the ground—here are eight you should consider:
1. Get your business credit report. Having a stellar personal credit score is great, but it won’t be enough to land you a business loan. Your business credit score (the number that tells lenders how likely you are to repay them) is a whole different animal from your personal credit score. A 2015 study issued by Nav, a business credit management service, found that 45% of small business owners don’t realize they have a business credit score and 82% don’t know how to interpret that score. Contact the business division of Dun & Bradstreet, Experian, or Equifax to see how your company stacks up. If your business credit isn’t up to snuff, you can work on improving it to obtain a future loan.
2. Prove your concept more convincingly. In some situations, you may have sought out your loan before you have the sales and revenue history to present the most convincing case. Work on growing your customer base well beyond your network of friends and family. Many banks require collateral—think assets such as inventory, equipment, and real estate—to secure a loan. And most will expect you to have been in business for a certain period of time, earning a certain amount of annual revenue before they will show you the money. Before you meet with any potential lenders, ask what minimum requirements they expect of small business borrowers.
3. Improve your cash flow. If you often struggle to make payroll or purchase inventory, that might result in potential setbacks or questions from your lender. Take a long, hard look at your expenses, financial projections, and your system for collecting accounts receivables. Consider: Is there anything you can modify to turn the tide? Can you use a corporate card or line of credit to pay for the raw goods and inventory you need to turn a profit each month? Can you reward customers who pay their accounts early with a slight discount? The idea is to eliminate ongoing cash crunches via other forms of available financing, as needed, so that lenders gain faith in your ability to repay them.
4. Consider other forms of capital in the interim. If you’re trying to get a restaurant or a clothing line off the ground, you’ll need money to source appliances, textiles, and the like. Small businesses in other industries will require different types of purchases, but being able to afford those items that are crucial to your operation will always be important. Besides helping you move forward, securing other forms of early-stage financing will show future lenders your creative problem-solving skills and commitment to your business idea. Your friends and family might be willing to take a chance on you, for example, or there might be a business plan contest or community and government grants that can help you get started.
5. Apply for an SBA loan. For fledgling business owners, Small Business Administration loans may be easier to obtain than traditional bank loans. The SBA works with traditional financing institutions to offer loans of up to $5 million for working capital, expansion, and the purchase of land, equipment, and facilities. It also offers microloans of up to $50,000 for launching or growing a business. Unlike banks, the SBA guarantees 75% to 85% of its loans. It also grants borrowers more time to repay loans than banks do: 7 to 25 years, depending on loan type. For more on SBA loans, see this guide
6. Beef up your executive team. Are you trying to launch an edtech company without a cofounder or advisor experienced in the education sector, or a catering company without a key team member who’s worked in food service or hospitality? Reconsider—relevant experience and expertise in areas core to your industry can make all the difference. Besides instilling confidence in future lenders, such strategic partners will have insights, contacts, and relationships with vendors that you may not. Likewise, if your executive team still includes that old business school buddy who helped you flesh out your idea at the beginning but has been MIA the past eight months, it might be time to make a change.
7. Revise your business plan. Are your financial forecasts realistic and your books thorough? Are your marketing efforts bearing fruit or should you explore better ways to use that budget? Do you need to adjust your core business offerings or sell to a different breed of customer to make your concept work? Ask the tough questions that will be asked of you. While enthusiasm, optimism, and sweat equity are the lifeblood of any small business, apply a realistic lens as you vet potential areas of opportunity.
8. Seek feedback. Enlist a seasoned entrepreneur or two familiar with your industry to go over everything on this list, especially your financials, marketing plan, and growth plan. If you don’t know where to turn for such mentorship, it’s time to get out into the entrepreneurial community and begin networking. One place to look is local startup incubators near you. Many feature lectures and networking events where you can meet more experienced business owners. Organizations like SCORE also will match you with a seasoned entrepreneur who can help.
According to a study issued by Pepperdine University, only 40% of small business loan applications were approved in the third quarter of 2017—so if you’ve been denied, you’re not alone. With a little dedication and attention to the above tactics, you’ll have another opportunity to show your company’s value and ultimately strengthen your case for future success.
This article is intended for informational purposes only. Readers should consult their own financial advisers, attorneys or other tax advisors regarding any financial or tax strategies mentioned in this article.
Equal Housing Lender. Santander Bank, N.A. is a Member FDIC and a wholly owned subsidiary of Banco Santander, S.A. ©2017 Santander Bank, N.A. All rights reserved. Santander, Santander Bank, and the Flame Logo are trademarks of Banco Santander, S.A. or its subsidiaries in the United States or other countries. All other trademarks are the property of their respective owners.