If you’re going to run a business, you need thick skin. Rejection is part of the game. But when money is involved — especially when you need that money to run or grow your business — you can’t always just shrug it off.
Here are three things to do if you are turned down for a small business loan.
1. Find Out Why
Finding out why your application was rejected isn’t always easy. In fact, in Nav’s American Dream Gap Report, nearly a quarter of business owners surveyed said they didn’t know why they were turned down for a loan.
Unlike a consumer loan, where a lender must provide a written notice describing the reasons for rejection, small business lenders aren’t held to the same standards. In certain circumstances, they may offer to provide that information only upon request, or they may provide a notice on the application that explains how to request details. (Here’s what small business owners must be told when turned down for a loan.)
Don’t be afraid to reach out to the creditor for more details if it’s not clear why you were turned down. Use some of that tenacity that helped you found your business and insist on an answer. Under federal law, you have up to 60 days to request that information, and your request must be in writing. The reasons for rejection can give you valuable insights into what you can do differently next time.
Denied for financing? Nav can help you determine why and take appropriate steps to improve. Get started for free.
2. Check Your Credit
If you’ve ever been turned down for personal credit, you’ve received a notice with the name and address of the credit reporting agency that supplied your report (if one was used) and information on how to request a free copy of your credit report. If a credit score was used, you get that score as well.
If business credit scores or reports were used to make a decision about your business credit, though, there is no similar requirement. You don’t get a free business credit report or credit score, so you’ll have to take your own initiative to check your business credit. (You can do so for free at Nav.)
Note that if your commercial loan application involved a personal credit check, and that personal credit report was used in whole or in part to make the decision about your application, you should get the same type of notice you would receive as a consumer.
3. Go to Plan B
Based on what you learned above, you may want to look into other financing options available to you. If you were turned down due to poor credit or a lack of credit, for example, you may consider financing that doesn’t rely as heavily on credit scores. Crowdfunding, some microloans and invoice factoring are examples of business financing options that are commonly available if you have bad credit. If you have strong sales, cash flow financing or business cash advances — though expensive — may help in the short term. And suppliers or vendors with whom you have good relationships may be willing to offer you extended payment terms (known as “trade credit”) while you work on building stronger business credit.
Ready to see your credit data and start building better business credit? Check Your Personal and Business Credit For Free (No Credit Card Required).