You will immediately learn when you have made the decision to pursue business ownership, that to get the business up and running, you need quite a bit of money. Getting a business loan, small or large, is the boost your idea and venture needs to thrive. The reality, though, is that your loan application can get rejected.
This could be as a result of several things like bad credit history, insufficient collateral, being a guarantor for a defaulter, having a business with low income or profit, having many other loans running at the same time etc. This is not the end though, so when your loan application gets rejected, what next?
READ MORE: 3 Reasons A Loan Application Is Rejected
If your loan application is declined, you might not know where to turn or what to do next.
You can start by determining the reasons you were denied a loan, how long you need to wait before you apply again, and what steps you can take, right now and in the future, to prevent it from happening again.
Recourse is available for any type of loan be it mortgages, car loans, personal and business loans.
Whenever there is a disconnect between the loan you thought you could obtain and what your lender agreed to, It’s worth narrowing that gap to boost your odds of approval when you re-apply for the loan.
So if your loan application gets rejected, and you are asking yourself, “what next?” Here are a few things you can do for your next loan applications to be approved:
1. Find Out Why The Loan Application Was Denied
Instead of feeling dejected and depressed about not getting that loan, you can simply contact the loan institution and ask why your application was denied.
Some lenders will be happy to disclose what was wrong with your application, where it was lacking and probably tell you what you are required to do.
Some of the common reasons you can get denied include:
– Having Bad Or No Credit
Lenders look at your borrowing history when you apply for a loan, which is reflected in your credit scores. They want to see a solid history of borrowing and repaying loans.
Banks want to know how much of a risk you might be to default on your loan, so they look at your borrowing history for clues. defaulted on loans in the past, in which case your loan application might be declined.
– Having Insufficient Or Unverifiable Income
Lenders will check your bank statement to know how much income you get on a monthly basis. This is how they can know if you will make the minimum monthly payments.
For instance, a person who earns ₦15,000 monthly requesting ₦100,000. A lender can deny your loan application if your income is far lower than what you are requesting for.
Also, if you claim, in your application, that you get your income from a source and the bank cannot verify it, your application might be denied.
– Having No Collateral Or Guarantors
A bank will require some sort of guarantee or an asset that is worth the amount you are asking for. Some lenders may not ask for collateral but will require someone else who can serve as a guarantor for you.
When a small business owner, especially one that has a new business, asks for a loan without these, they might be denied.
Filling your application incompletely or incorrectly can disqualify you from getting a loan too.
2. Regroup And Reapply
Save yourself the frustration of applying again and getting rejected by taking your time to review the feedback that your lenders have given you and look at the red flags your financial profile raises and resolve them.
A couple of ways you can do this:
– Assess Your Debt And Income:
Determine what your debt-to-income ratio is so you can know if your income will be sufficient to repay a loan. Find out what the debt-to-income ratio is from your lender.
Having a ratio of 36% and below will increase your credit worthiness and chances of being granted the loan.
– Inquire From Your Lender:
Ask your lender for what their requirements are exactly, as far as your financial profile. They will gladly explain what matters and what doesn’t, and how long you need to wait before re-applying.
They will fill you in on what you need to do to prepare yourself before you fill out another loan application.
3. Implement Some Short Term Strategies
There are some actions you can take that generally have an immediate positive effect on your financial profile and increases the chances of your loan getting approved:
– Use Collateral
Your loan application will be granted if you come with an asset that has equal or greater value, even if you were rejected at first.
– Get A Guarantor
If your credit score is poor and you have a friend who has better credentials, they can apply with you and agree to become responsible for repaying the loan.
This will increase your odds of getting your application approved.
– Apply Somewhere Else
Just because one lender rejected your loan does not mean it cannot be approved elsewhere.
If you believe your finances are as strong as you can make them, don’t wait before reapplying; approach another lender and apply for a loan with them.
4. Implement Long Term Strategies
While they are some immediate actions you can take to ensure your application is approved when you reapply, somethings in your financial profile cannot be changed overnight.
But with time and patience you can make changes to your finances and make it easier to borrow. You can;
– Build Your Credit
Borrowing will be easier in the future if you build a strong credit history. That means you’ll need to borrow and repay loans on time.
Your credit will gradually improve, and you’ll likely get fewer rejections going forward.
– Increase Your Income
Be it by starting a side business, earning a certificate, improving your skill or learning a new one or asking for a raise and/or promotion at your place of work, you should try to increase your income.
This way your income statement will show that you qualify for the amount you want to borrow.
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My name is Emmanuel Ejiga. Content lead of OG Capital
I am a writer. Technical writer, song writer, and sometimes fictional writer.