A bank rejection, or for that matter, any rejection is painful but particularly if your company is under a time crunch to complete a new equipment purchase or finish a project. Many businesses leave the financing stage as the final item on their agenda which may not allow time for a contingency plan in case things do not go smoothly. Many personal bankers are my favorite people but like many of us, they operate within certain parameters and guidelines. More than ever, those guidelines are being strictly adhered to. Understanding what their guidelines and limits are will encourage you to stop jumping from bank to bank expecting a different exit from your same financing request. So, what do you do if your loan or finance request is rejected?
Step 1 – Do not grab your paperwork, withdraw your funds and go running down the street. Instead, request a short meeting with your banker and take the time to fully understand specifically why you were returned and take notes. You may not have sufficient time in business, have credit below their standard, generate insufficient cash flow or are carrying too much debt. Many of these lending standards are the same for banks across the board so dumping your lender will usually not be helpful. Keep in mind that a long term relationship with one institution is best for your business in the long run.
Step 2 – Ask your lender what it would take to get approved with their facility or in general. Here is where the value of a seasoned personal banker will be useful. Sometimes moving assets from one area to another will get the job done or bringing on a partner with good finances or credit will help. Sometimes changing your business entity will do the trick. Ask which issues are complete roadblocks; these will be the red flags which all lenders will have to overcome. For instance, 3 months in business for most lenders is a complete dead end. Understand what the show-stoppers are and again, take more notes.
Step 3 – Talk to a finance specialist or finance broker. An experienced broker will work with a variety of wholesale lenders and private equity groups. These types of lenders have more flexibility and operate under different guidelines and regulations than commercial banks. The deal-stoppers are much less frequent since they are structured to work with a wider variety of customer profiles. The best advice; provide your notes based on your past rejections so your broker will know exactly where you stand and what type of lender is most likely to approve you. Knowing your specific issues ahead of time is helpful in positioning and accentuating your strengths and finding the lender most likely to stamp your application with an “APPROVAL”.
A high “A” credit client will get top rates from a finance broker or a local bank while riskier businesses will pay more, but at least they will have an avenue in which to get their financing approved.