What to Do When a Bank Declines a Business for a Traditional Loan

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Banks frequently refuse loans to small businesses as running a business is a risky venture. When a bank turns down your application for a business loan, try one of these alternative financing solutions. Here’s what to do when a bank declines a business for a traditional loan:

Research Available Government Grants

Grants, subsidies, and various government loans may provide an alternative to a bank loan. However, government loans tend to come with strict application requirements as they are intended to help businesses in specific industries or regions.

For example, many of the federal grants are intended for scientific research, conservation, and technology. Businesses outside of these fields may find assistance through state government grants.

Use Invoice Factoring for Fast Cash

Factoring provides a convenient source of funding for businesses with outstanding invoices. It allows your business to sell invoices for a lump sum payment.

When used properly, factoring helps improve your immediate cash flow without taking on additional debt. However, as factoring relies on existing invoices, start-ups may need to seek other financing options.

Use Investors for Substantial Capital

If your business requires a substantial amount of additional cash flow, investors may offer a suitable solution. The drawback to working with an investor is that you may need to give up a share of the equity in your business.

Venture capitalists also provide large investments and typically work with start-ups. As with investors, venture capitalists seek a portion of the equity in the businesses they invest in. However, they also help develop business strategies instead of acting as a silent investor.

Try Raising Funds Through Crowdfunding

Crowdfunding is another option for businesses that need to generate additional cash flow. Crowdfunding is a type of peer-to-peer lending that allows family and strangers to donate to a specific project.

Peer-to-peer lending works best for start-ups with small to moderate financing needs. It provides a way to gain short-term funding for low-cost operations. While you need to offer an incentive to the individuals that pledge money to your project, you do not need to repay the funds.

Downsize Your Business Operations

Along with these financing options, there are other ways to obtain cash. If your business requires funds to maintain daily operations, consider selling assets or downsizing.

Reducing the size of your operations may limit overhead, making your business more stable and profitable. Selling assets also provides quick access to working capital.

After downsizing or selling assets, your business can focus on increasing its cash-to-debt ratio, which makes it easier to obtain a traditional loan down the road.

In the end, every situation involves different financial needs. Always review your options before using one of the alternative financing solutions discussed.

 

It Matters with Matt

Written by Matt Rojas

Rojas is a Senior Lending Officer, ISO Manager, Underwriter, and Factoring Specialist for Ironwood Finance since 2015. His team provides educational information to the small business community, which covers topics such as business financing, education, customer service, and much more. If you’d like to see a topic covered on the Ironwood Finance blog, or be featured please email him at matt@ironwoodfinance.com

 

 

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