NFIB

Five Steps to Take When a Lender Says No
05/ 27/ 2003

by Jeffrey Moses

If you've had a loan application turned down, take heart. Many successful businesses have had loan applications rejected during their start-up phase. When this happens, it's important to learn what you did wrong, what additional information you need and how your company's operations might need to change.

When a lender says no, try to do the following:

1. Thank the lender for the time spent reviewing your application.

Never act resentful. It's very likely that the lender considered the application in a highly professional, objective manner. Loan rejections should not be taken personally. Remain professional, and you will have the best chance of impressing the lender for future applications.

2. Ask what specific information or lack of information counted against you.

Most banks will follow federal regulations and prepare a detailed explanation for the loan rejection. Talk with the lender about the points mentioned, asking how you can address each to improve future applications. Again, never argue with the lender about any of the points. Remain calm and reasonable, and learn as much as you can.

3. Ask the lender for specific, personal recommendations.

You could ask, for instance, "Can you give me any personal advice on how to improve my loan application?" Many times, the answer will refer to aspects of your business operations that need improving.

4. Understand that, generally speaking, business loans are turned down for four main reasons: poor credit score, lack of collateral, uncertainty of cash flow and poorly written loan application/business plan.

Discuss the first three points in particular with your lender to see how you might be able to work out a loan even with a low credit score and before cash flow becomes steady. When it comes to writing your loan application and business plan, ask what in particular was lacking. Take that information with you to your next meeting with your business adviser.

5. Ask the bank if they can re-work your application so that it fits with their lending criteria.

The resulting re-worked loan agreement may insist on substantial changes to your operations or require adding significant personal collateral, such as taking out a mortgage on your home. But at least you'll see what you need in order to structure a favorable loan application.

Finally, if it seems that you and the bank will not be able to work out an agreement--and if it's likely that your cash flow or collateral probably won't meet criteria for some time--ask the bank for suggestions on finding a lender that can work within the financial parameters of your company. Always seek out reputable lenders with established track records in the community.

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