Traditional banks have many requirements and a lengthy process for loan approval. Due to the high demand and strict regulations, securing a bank loan can be challenging, especially for small businesses. If the bank rejected your loan application and you don’t know what to do now, this guide will help you. Our business loan agents in NYC have discussed the steps to take after your loan application has been rejected.
Identify the Cause of Rejection
Identifying the cause is the first thing to do after your loan application gets rejected. This will help you plan the next steps accordingly and have better chances of acceptance in the future. Some common causes for bank loan rejection include:
· No or Bad Credit
Banks require the loan applicant to have a strong history of borrowing loans and repaying them on time. If you haven’t borrowed much in the past, or experienced issues while repaying them (or defaulted on a loan), this will prevent the bank from accepting your application.
· High Debt-to-Income Ratio
Banks consider your debt-to-income ratio— it compares the amount you owe to the amount you earn. This tells them whether you will be able to repay the loan. So if you have a high debt-to-income ratio, it could be another reason for rejection.
· Unverifiable or Insufficient Income
To approve your loan, lenders and banks consider your income, including salaries and other investments. They reject applications if the applicant doesn’t have sufficient income to repay the loan or unverifiable income.
· Insufficient Collateral
When taking out a business loan, you need sufficient business credit as collateral. However, if your business isn’t established enough, you must put down personal assets as collateral. Not having the right collateral reduces your chances of loan approval.
Wait Before You Reapply
Once your loan application is rejected, don’t apply for another bank loan immediately. Banks perform a hard credit check on your finances which shows in your credit file. Applying multiple times in a short time will leave a negative impression on lenders.
Now that you know the possible reasons behind loan rejection, you should identify and rectify shortcomings that denied you a loan. This includes building a good credit score, reducing your debt-to-income ratio, increasing income, acquiring collateral, etc.
Consider Other Options
If your business urgently needs additional funding, consider other options for borrowing. Even if a bank doesn’t see you fit for a loan, a different lender might approve your loan.
At Whitestone Fund, we offer a wide range of business financing solutions and have partnered with private money lenders in NYC. We offer solutions according to your situation and requirements with flexible repayment terms. Working with us ensures that you get access to quick and adequate funds as we have a 95% acceptance rate.