Finance is crucial for building any business. As a business grows, so does its need for finances to meet its requirements. All the finance required for building a business cannot be brought in by the promoters alone. Hence, there arises a need for credit.
Credit can be used for a multitude of reasons ranging from short-term requirements like meeting working capital needs to inventory management to long-terms needs of financing an equipment or need of funds for expansion.
Whatever may be the need, a business owner depends on the availability of credit when he applies for one. Denial of a business loan can come as a huge blow, especially for small and medium enterprises who do not have easy access to credit.
However, instead of brooding over the lost chance, it is good to proceed ahead.
We bring to you simple pointers that can help you in case you have been denied a business loan.
Additional Reading: 8 Reasons Personal Loans Are Rejected Even With Good Credit Score
Evaluate the Reason for Denial
When a loan is applied for, a lender does a thorough check of the documents submitted and then takes a weighted decision of approving or rejecting the loan. There would be a reason for the rejection. You could approach the lender and try to know the reason for rejection of your loan application. The reason could range between a lot of reasons like your business financials, area of operations, government regulations pertaining to the area, etc.
Once you know the reason for rejection, you could act on that particular area before applying for credit the next time.
Revisit the Financial Standing of Your Business
The lenders want to make sure that you are capable of repaying your loan on time, for which your business would need to have a sound standing. Factors like the cash flow, number of years that your business has made profit for, your reserves, etc. will be of importance to help the bank make the decision.
You may want to have a relook at the existing debt of the company too. The business should be in a position to service its existing debt as well the new debt that you are looking to take on.
Additional Reading: 5 Important Tips for a Successful Business Loan Application
You could make use of a simple ratio called the Debt Service Coverage Ratio (DSCR). This ratio calculates the cash available to debt servicing for interest, principal and lease payments.