We've all learned that whenever you need a loan, you go to a bank. But what happens whenever a small business is turned down for a bank loan? Although it could be a frustrating experience, getting turned down by a bank isn't the end of your look for growth capital. Actually, the next move begins with just one question: “Why?”
The reason why your company wasn't approved for a financial loan will give you a good idea of what's towards the top of your to-do list.
“There are a number of reasons that small business operator might not be capable of getting financing from the bank,” says Zachary Petry, a loan officer with Bank of Bay area, “but there is no reason that their search for capital should end.” Zachary shared three common reasons that the small business is rejected for financing – and we've included some next steps for each scenario:
The company does not have historic profitability
Most banks search for historic profitability to ensure that a loan will be repaid. However, many small businesses trying to get loans only show projected profitability. Luckily, there are lots of great lenders available that do not have as strict of policies around past profitability. Kassin Laverty, a small business owner who took a SAIL Loan last year, says, “SAIL was the best fit for us because while banks scrutinized our history, the SAIL team looked more at the potential within our business model.”
There are lots of causes of capital that could be suitable for your business. Using The FundWell's widget is a straightforward initial step to locating lenders that are a great fit for your business!
There are outstanding payments on the company or guarantor's credit history that haven't been addressed
Having a subpar credit report will likely be a warning sign for just about any lender, whether it is a bank, a nonprofit or perhaps a microfinance institution. While it may be your first response to obtain a loan to pay off past debts, it's best to first dig to your finances to find out where these unresolved problems started. Through getting to know your company and private financials better, you will have a clearer picture of where your hard earned money goes and how you get been unable to maintain other payments. If you have these details, you'll be able to clean your credit and become a much better candidate for a loan later on.
Intimidated by digging into your financials? You will find great small company resources available that can help you figure it all out.
The funds are sometimes requested for covering current expenses instead of growing the business
Take a step back. Why are you searching for capital? Are you ready for growth or are you just trying to keep your company running as-is? Going for a strategic review your business and coming up with a arrange for sustainable growth should be at the top of your list as you start looking for capital elsewhere.
Need help having your strategic plan in position or just checked out by an expert-level volunteer business advisor? Check out www.BusinessAdvising.org.
The moral of this small business funding story would be to not give up. You will find resources online and in your community to help you reach your company growth goal. It's important to keep in mind that you will find plenty and lots of choices for obtaining capital whatsoever levels. If you're searching to raise a comparatively small sum of money (usually up to $5,000), a microloan via a lender like Kiva Zip might be the right fit. For slightly larger loans, many nonprofit organizations, for example Pacific Community Ventures, Opportunity Fund and Working Solutions, lend to smaller businesses that may not be ready for a financial loan. Additionally, personal crowdfunding sites like Kickstarter and Indiegogo allow small business owners to customize their loan amount and raise money amongst their friends, family and supporters.
In addition to the time in the above list, The FundWell is a wonderful place to start when you're searching for the best loan for your small business. Consider all of these funding options a bridge which will eventually help you to get that financial loan!
