The Top 3 Reasons Your Business Loan Got Rejected & How to Fix Them

Have you ever found yourself applying for business loans but then getting rejected? Have you applied for a business credit card and it was denied? If you answered YES - don’t worry - we have ALL been there! When you're running a business, getting your hands on capital can feel like a major hurdle, especially if you're getting turned down and can't figure out why. 

There are a few common reasons lenders might be saying 'no' to you, and understanding these can help you turn those rejections into approvals. In this blog post, we are going to break down the 3 major reasons you could be getting rejected for business capital and how to fix them. Let’s talk about it!

1. Being in a High-Risk Industry

Business funding is huge when it comes to helping your business succeed, especially if you are a female entrepreneur. One of the biggest reasons you could be getting a denial is because the industry you are in is considered ‘high risk’. Let’s start off by explaining what a ‘high-risk industry’ is. Think of businesses that have a higher chance of failure due to their nature, like new tech startups, credit repair businesses, real estate, trucking, restaurants, or travel agencies. These industries can be unpredictable, making lenders cautious. They worry about whether you'll be able to pay back the loan if things don't go as planned.

If you're in one of these industries, don’t panic! It's all about proving stability and potential. There are multiple ways to appear more credible and stable to lenders, including solid business plans and strategically leveraging holding companies to your advantage! 

2. Lack of Proper Business Structure

Here’s a little secret → your business structure is the CORNERSTONE of getting approved for business funding! This is about how your business is set up legally and financially.  If your business structure is weak – like you’re not even registered with the Secretary of State as a sole proprietor, LLC, or a corporation – lenders will overlook you! A clear structure gives them confidence that your business is legitimate and well-organized.

Pro Tip: If you haven’t already, consider forming an LLC or a corporation. This not only helps with loans but also offers legal protections. It is extremely important to get your paperwork in order! Register your business, get the necessary licenses and permits, and keep your business finances separate from your personal.

3. Insufficient Credit Profile

Okay business ladies, there is one thing you NEED to understand when it comes to applying for business capital- CREDIT IS KING in the world of business financing! We’re taught that we should avoid credit at all costs when it comes to our personal finances, but nothing could be further from the truth when it comes to doing business. An insufficient credit profile can mean not having enough credit history, a credit history that looks risky, and many other factors.

Lenders look at your credit profile to decide if you're a safe bet. Without a good credit history, they can't tell if you're likely to pay them back.

So how can you boost your business credit profile? That’s a great question! Start by understanding your current credit situation. Check your credit reports for errors and get them fixed. Then, work on building your credit. This might mean taking smaller loans and paying them back on time, using business credit cards wisely, and always paying your bills on time! Last but not least, working with a funding coach can help you structure your credit profile in a way that is irresistible to the banks. Remember, YOU are the author of your money story! If your credit profile needs some work, it can be fixed! 

Getting to 'Yes' With Lenders

Listen to this you guys, the 2023 Report on Employer Firms by the Federal Reserve reveals that in 2022, 21% of businesses applying for loans were turned down. Think about that for a second! So what does that mean for you?! 

Understanding why lenders might be saying 'no' is the first step to turning that around. It's not just about fixing the issues; it's about showing lenders that you're a smart, safe investment! 

In the high-risk industry dilemma, it's about proving you're the exception. With credit, it's about building a history that says, "I'm reliable." And you having the proper business structure proves that you are a bonafide, professional business.

Remember, each 'no' is an opportunity to learn and improve! Take the feedback, work on these areas, and approach lenders again with a stronger, more convincing case. This is YOUR time now! You can turn it all around! 

Conclusion

Being denied for business capital can be frustrating but it's also a perfect opportunity to check your mindset and use it as the motivation you need to up your game! Whether it’s reassessing your industry risks, getting your business structure in order, or building a stronger credit profile, each step you take brings you closer to a 'yes.' 

The journey of entrepreneurship is all about overcoming challenges, and navigating the world of business financing is a big part of that journey! I was right where you were! 

Keep learning, keep improving, and soon, you'll find lenders who are ready to support your business dream. It’s YOUR winning season!

Ready to improve your financial picture for YOUR business? You are exactly where you need to be! Schedule your Fundability Analysis to find out how funding-ready your business is today!