Bank loan declined: what to do

Are you a small business owner whose small business loan application has been denied by a bank or other financial institution? Perhaps it was because you were unable to supply the extensive documentation that is increasingly required by most banks. Or the underwriter reviewing your loan application at a bank may not believe your business model is sound, despite a demonstrated track record of success on your part. The underwriter, who likely is simply applying a standard set of metrics and criteria that his or her financial institution utilizes for every small business application regardless of the industry the small business applying for the loan is in, may not even truly understand your small business, the industry it is in, or your business model. This often results in a simple form denial letter not because your small business is unqualified to receive financing due to some sort of financial weakness, but due to a lack of understanding on the bank’s part of your small business and its creditworthiness.

Banks Have Increasingly Streamlined and Tightened Their Loan Processes As a Result of Losses Suffered During the Financial Crisis, But Often at the Expense of Otherwise Qualified Loan Applicants

Even if your small business loan application has been denied by a bank or other lending institution, do not despair. One of the results of the financial crisis that began in the United States and spread throughout the world beginning in 2008 has been a retrenchment in risk by many of the larger banks and financial institutions as a result of the horrendous losses they suffered due to the huge volume of non-performing loans on their books as a result of the financial crisis. This has led to an industry-wide tightening of the credit standards and a general aversion to risk among banks across their loan portfolios. This has led many banks to develop standardized credit guidelines for mortgages, an issue that has been widely reported in the press due to the difficulty it has caused for many prospective homebuyers looking to buy a house in the United States. However, few people realize that this same process has occurred at these same banks as it relates to their other loan offerings, such as small business loans. This has led to an increased rate in the rejection rate among these banks in their small business loan processes.

Many Banks Have a One Size Fits All Application Process That Does Not Look at Your Individual Small Business and the Industry You Are Operating

The first thing you need to understand about how some of these lenders work is that they have a one size fits all application process. This may cause them not to be experts in, or even understand very well, the field that your small business operates in, let alone your particular small business’s particular business model. The bank may also have internal rules of thumb and metrics that are applied to all small business loan applicants across every industry, no matter what type of small business you own.

However, as a small business owner, you understand that some industries have higher margins and profitability than others, whereas in other industries profitability may be driven more by volume. Your business might therefore be judged with different key performance indicators or business metrics than another small business in a different industry. However, because a bank underwriter might be bound by internal credit guidelines that apply to all small businesses, regardless of industry, your small business might be penalized simply because it is in the “wrong” industry. This could result in denial of an otherwise meritorious small business loan application.

Just Because a Bank or Other Lender Rejected Your Small Business Loan Application Does Not Mean Your Small Business Will Not Be Able to Get Financing

Many small business owners assume they are out of luck in their search to find financing to fund the operations of or expand their small business if they apply for a small business loan with a bank and their loan application is denied. This may have been true twenty or thirty years ago when banks were the only source of financing for small businesses in need of funds for the operation or expansion of their businesses. However, many other sources of alternative financing exist today. Applying for a loan with BestOffer Capital does not require filling out the extensive loan application banks require for small business loan applicants not do we require the boxes of supporting documents applying for a small business loan through a bank may require. We also do not apply the same credit guidelines and risk metrics to every single business, no matter the industry the small business is in.


  •  Do not assume that just because your small business loan application with a bank was denied means that your small business will not be able to obtain financing for its day to day operations or to expand your business.
  • Banks often apply the same metrics and credit guidelines to all small business loan applications, regardless of the industry the small business is in. These guidelines or metrics may or may not take into account the age of your small business, the industry it is in or any of your business’s individual characteristics.
  • Other sources of financing for small businesses exist outside of banks and mainstream financial institutions.

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