If your application for business credit was turned down, use it as an opportunity to understand why and learn how you may be able to improve your credit profile before you apply again.

1. Determine why the credit request was denied

There are lots of reasons a lender might be unwilling to extend credit. They can include:

  • Insufficient credit history
  • No proven ability to pay off a loan
  • Derogatory items on a credit report such as late charges, a lien or a bankruptcy
  • Lack of collateral to secure a loan

When a loan or other credit type is denied, you can ask the lender to share the reasons for denial in writing. (Legally, they must share this information if you request it.) 

Understanding why credit was denied can help you better use the various resources available to help. The National Foundation on Credit Counseling offers services specifically for small business owners. Or read more about what makes a strong credit application.

2. Understand what lenders look for

While a personal credit score might be a key factor, lenders also focus on other factors related to your business’s financial performance. In other words: your business’s track record matters. When reviewing an application, a lender will consider:

  • Is the business viable in the short and long term?
  • Are the owners making payments on time?
  • Do they maintain a stable, positive cash flow and/or cash reserves that can support current and future payment obligations?
  • Do they have an existing banking relationship?

You may be asked for a business plan, too. For some applications, like Small Business Administration (SBA) loans and lines of credit, this is required. In other cases, it’s just a “nice-to-have” that helps lenders understand the type and amount of financing an applicant might request.

Your personal credit history matters a great deal, too. Especially in a business’s early days, lenders may rely more heavily on personal credit history when evaluating credit risk. Consider taking the time to improve or rebuild your credit score before reapplying.

3. Consider secured credit options

When you’re ready, make small forays into business financing using secured loan products. Secured credit may be an option for small businesses that might not qualify for unsecured credit and those seeking to establish or rebuild credit. For instance, you can spend some time building up your savings so that you can use it as collateral for a credit card or line of credit that is secured by the savings. Vehicles or equipment might also be used as collateral.

Obtaining business financing without an established credit history can be difficult. The key is to work at building a positive credit profile with smaller loan products and demonstrating personal financial responsibility by consistently making all debt payments on time.

Resources for Small Business

Use this interactive tool to develop your business plan today.

Business Plan Tool