You spent the last several months putting together solid mission and vision statements, developing a business plan, and preparing to pitch a great idea to your bank. After all that work the day finally arrives for you to meet with the loan officer. A couple of hours after the meeting you find yourself sitting in a café, pondering the fact that your request for start-up loans has been rejected. Now what do you do after your loan denial?
Loan denial is nothing new for startup owners. Start-up financing is one of the hardest types of financing to obtain. And that is not for lack of good reason. Banks are rather risk-averse by necessity, and start-ups are risky by their very nature. It takes a lot to convince a bank that a new business venture is worth investing in.
All that is of little comfort if you have tried unsuccessfully to secure startup loans. So that brings us back to the original question of what you do after being denied. You have quite a few options, all of which are valid. Keep reading to learn more.
Find out the Reason for Denial
The first thing you should do, without question, is find out the reason or reasons you received a loan denial. Banks must detail any and all reasons for rejecting a loan application. This is information you should be able to put to good use next time you seek financing.
If the primary reason for your rejection is a poor credit history, start taking steps now to fix your credit. If the primary reason is an insufficient business plan, start networking with experts who can help you craft a better business plan. Whatever the reason or reasons, do what you can to overcome them.
Look to the Bank Referral Scheme
The next thing you can do is look to the Bank Referral Scheme that was originally launched in 2016 to aid startup owners just like you. The scheme was launched in response to data showing that far too many business owners give up on their dreams after a loan denial by their banks. The government decided that entrepreneurs need a little bit more assistance.
The Bank Referral Scheme requires nine of the nation’s largest banks to pass on application information on any applicants they reject. The information is passed to three government-backed financial platforms that act as a clearinghouse for other lenders more willing to work with entrepreneurs.
The three platforms then share that information with other lenders. If any other lenders show interest, the platform will initiate a conversation between those lenders and the business owner. Hopefully it all leads to start-up loans being offered.
Look to Other Sources of Funding
Having a start-up loan application rejected is not the end of the world. It can seem like it, which is why so many entrepreneurs give up after only a single try. But banks are not the only source of funding. In fact, they tend to be the least favourable form of funding out there.
If you have been rejected for one or more start-up loans, consider your alternatives. For example, there are private lenders comprised of multiple investors who pool their money rather than relying on retail deposits. Private lending companies tend to be more receptive to small businesses and start-ups.
Crowdfunding is another option. It is an option that seeks to bring together individual consumers willing to contribute a small amount in order to help a new venture succeed. Crowdfunding has become increasingly popular as a business financial tool ever since the financial crisis hit some 10 years ago.
There are additional funding sources including government grants, private equity, angel investing, and even peer-to-peer financing. The point is this: your local bank is not the be-all and end-all of startup loans. There is more than one way to skin a cat, and multiple ways to secure start-up financing.
If your loan application has been denied by your bank, find out why. Then set about fixing whatever is getting in the way of borrowing. In the meantime, look to the Bank Referral Scheme and alternative funding sources to get your venture off the ground.