How Can I Improve My Chances For Loan Approval After Getting Denied

by Debi Enders

This may seem obvious. Ask. Bankers take no pleasure in denying loans. Many are happy to explain application weak spots and recommend concrete steps you might take to gain approval the next time.

Your banker could point out, for example, that your business lacks the cash flow needed to repay the loan. Insufficient cash flow — too little cash coming in and too much going out. If that’s the case, your banker might suggest establishing credit policies that speed the receipt of cash from slow-paying customers. That may include offering discounts to customers who pay bills early and charging a penalty to those who pay late.

Invoicing customers promptly and taking steps to collect monies owed you can also help improve cash flow. You might also consider expanding or changing the payment methods available to your customers. Newer, electronic options can get cash in your hands faster.

If, on the other hand, your bank thinks you have too many liabilities, your banker might recommend that you reduce inventory, cut back on payroll or pay off other debts before you reapply.

Not every bank will share information on loan denials. Online lenders, for example, aren’t necessarily designed for ongoing conversations with applicants. The same can be true if you are seeking financing from a bank where you aren’t a regular customer.

This is another reminder of why it is smart for small-business owners to build strong relationships with their banks. A banker who knows you will talk with you about ways to improve your chances for loan approval before you submit an application. And they’ll keep the conversation going as you make the adjustments needed to get to “approved.”

Debi Enders (debi.enders@commercebank.com) is vice president, small business banking at Commerce Bank.