Rejected for a Business Loan? What To Do Next

Running an SME is challenging enough without the added stress of being turned down for a business loan. If your application was rejected, don’t panic - this isn’t the end of the road.

There are plenty of steps you can take to turn your fortunes around. Here’s a practical guide on what to do next:

Step 1: Understand Why Your Loan Was Rejected

Lenders don’t reject applications without reason, so your first step is to discover why. Ask the lender for feedback if it hasn’t already been provided. They should be able to tell you what factors led to their decision. Common reasons include:

• Poor credit score - If you or your business has a low credit score, lenders might see you as a ‘high-risk’ borrower.

• Insufficient trading history - Many lenders prefer companies that have been operating for at least 12 months.

• Weak cash flow - If your business doesn’t generate enough regular income, the lender may be concerned about your ability to repay the loan.

• Existing debt - Lenders might be hesitant if you already have other loans or credit lines open.

• Subpar business plan - Lenders want to see a clear strategy for how you’ll use the funds effectively and repay them on time.

Step 2: Check Your Credit Report

Since credit scores often play a significant role in loan approvals, it’s a good idea to check yours. In the UK, you can access your business and personal credit reports from reputable agencies like Experian, Equifax and TransUnion.

If your score looks low, start working to improve it by paying bills on time and reducing your outstanding debts. If you find a discrepancy, you can dispute credit reporters to get your score adjusted.

Step 3: Strengthen Your Business Finances

If cash flow or financial stability is a concern, take steps to improve your numbers:

• Tighten your purse strings - Cut unnecessary expenditure and streamline your operations.

• Boost your revenue - Consider adjusting pricing, expanding your customer base or offering new services.

• Manage outstanding debts - If you have existing loans or credit, work on paying them off before reapplying.

Step 4: Consider Alternative Options

High street bank loans aren’t the only way to get funding. There is a range of other options, including:

• Government-backed schemes - The UK Government offers several funding schemes for small businesses.

• Alternative lenders - Online lenders and challenger banks often have more flexible lending criteria than the high street names.

• Invoice finance - If you have unpaid invoices, you can borrow against them to free up your cash flow.

• Crowdfunding - Platforms like Crowdfunder UK allow small businesses to raise money from the British public.

• Angel investors - Wealthy entrepreneurs may want to invest in your business in exchange for equity.

Step 5: Improve Your Loan Application

If you plan to reapply, ensure your application is as strong as possible. Here’s how:

• Refine your business plan - Clearly outline your business model, revenue streams, and how you’ll use the loan.

• Present detailed financial records - Ensure accurate accounts, tax returns and P&L statements are included.

• Offer a guarantor - Hesitant lenders may be more willing to approve your application if you offer collateral or a personal guarantee.

Step 6: Seek Professional Advice (Optional)

If you’re still unsure about your next steps, consider speaking to an expert. Accountants, financial advisors and business mentors are qualified to provide valuable insights into improving your financial standing and finding the right funding option.

A Reminder

A loan rejection can feel like a major setback for your business, but it doesn’t have to be the end of the road. By understanding the logic behind the rejection, strengthening your financial position and exploring other options, you can find a way forward.

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