Persistence
Never Take No for an Answer
Does this sound familiar? You applied for a loan and the bank officer responded with the dreaded words, "I'm sorry, but..." and turned it down. Admittedly an unhappy scenario, it is not unique and happens to many businesses at some point.
Fortunately, you can turn what would otherwise be a negative rejection into a positive learning experience by taking steps to find out why the final answer was "no."
Personalize the Process
It helps to first become familiar with how banks actually process loan requests. If special circumstances apply to your business, describe them to the loan officer and ask what additional information might be presented to help your case. Openness about the particulars of your financial situation can help bankers look past the impersonal statistics.
If anomalies exist in your business or credit history, point out and explain them before making the credit application. This personalizes the entire process and helps to establish trust between bank officer and business. It is commonly said that bankers don't like surprises, and one of the worst surprises is discovering bad credit.
Why You Didn't Get the Loan
Banks most often deny credit because a business has:
- Bad credit. As noted above, a clean credit record is crucial in both business and personal finances. Anything else sends the bank warning signals about your likeliness of repaying the loan in a timely fashion - or at all.
- High debt-to-equity ratio. A typical ratio is three-to-one. Banks also look at other standard ratios for credit worthiness. In special circumstances, businesses that do not meet the usual standards may still be considered.
- Insufficient collateral. This is a common problem for start-up businesses that lack collateral or significant assets to pay back the loan if the company should experience hard times.
There are other reasons why a bank might reject a loan application. If yours is turned down, it behooves you to find out why the loan officer thought the proposition was too risky. The bank may even have suggestions on how to make your presentation more persuasive.
References:
• Small Business Administration
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