No one wants to get a rejection at any point. Whether it is a rejection from the hiring department, the person, or even from the bank. This is also a point in the small business fund. If you applied for a small business fund but what if the lender or bank rejects your fund application? Mainly, small business funds are important to launch your dream startup or expansion of an existing business company. However, a small business fund is not so easy to get to establish a new company. So, below is a few things you should know if your application does not approve for a business fund. The lender or bank might reject your application for multiple reasons i.e. low credit, high debt, and other things. Remember rejection is not the end of your business, there are several things that you can consider. So, here are the things you should keep in your mind if your business fund application is rejected.
Find the Reasons why the Lender Rejects your Application?
As said earlier, rejection does not mean to take personally. The main aim of rejection is to help you find the weak points in your fund application. You can ask the bank and your lender why they reject your application. If you ask them, they will provide you with all the reasons for denial in a written form. This can be helpful that you can find the weak points of your business plan. Some reasons are here due to which lenders can deny your application:
i. Less or No Personal Credit
Personal credit has a major role in credit decisions, that many business owners do not realize. The main point is that banks want to see good credits (generally 720 or even more than that). They also want to see the business credits of an established business. The establishing time of business credit is five years. A business of fewer than three years does not have any business credits.
ii. Weak Cash Flow
Along with your business fund application, the lender will check whether you can pay your applied fund each month. If your monthly expenses are so high then how would you be able to pay the fund? So, you need to solve it. To reduce this problem, you can have an emergency fund and cut expenses that are of no use.
iii. Absence of Collateral
Banks typically do not give the money to the businesses, which does not promise any collateral for the fund in the application. In other words, this means that if your business does not work well after taking the fund. Then you have to pay the fund with collateral, such as a house or land. So, you have to add all your collateral documents, only then you will be able to get the fund.
iv. High Debt
Banks do not want to push themselves in the loss. If you already have a long list of debts in your account from other funds, then it is impossible. That means the lender will hesitate a bit to give you the fund. Then for this concern, you have to make sure that you will pay all the funds. Along with it, try to maintain low debts in your bank account.
v. Lack of a Strong Business Plan.
Generally, the lender does not provide a fund to new businesses. Also, it is impossible if they do not have any perfectly detailed business plan. Just imagine, if you want the fund only to design your office with a classy and big aquarium. If this will be the reason for applying for a fund then the bank or lender would not entertain this. Instead of this, if you conduct well research and tries to prove that you know who are your customers. Also if you provide the finances and goal plan, then it might be easy for you to get approval.
Resolve before you Reapply
After reviewing the denial reasons that your lender sends you, then you have to solve those issues. After solving these issues, you can reapply for the fund-
i. Evaluation of Debt-to-Income Ratio
To resolve this issue, you have to check your debt and also the sufficient income to pay the fund. Thus, you can calculate the debt-to-income ratio. If the ratio is more than 34%, then the lender can trust your worthiness to pay the fund.
ii. Check your Credit Reports and Improve the Cash Flow
When you apply for the fund, evaluate the personal and credit report. Review them to identify some problems like late payments of credits. If your credit report has these issued then the lender can reject your application. Even if there is an error in the credit report, then contact the credit bureau.
iii. Speak to your Lender
First of all, you have to rectify all the errors from the application. Then check your application, if you are in doubt about the application, talk to your lender. They will explain everything, what is wrong with your application and when you can apply for the credit.
If your fund application gets rejected, do not panic at all. Just keep the above-mentioned points in your mind before you reapply for the fund. Work on these points and remove the negative points from your application as much you can. Surely, these improvements will consume more time but will makes you a suitable candidate for the fund.