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Next Steps To Take If Bank Loan Is Rejected.

Full of anger. In a confused state. Felling hopelessness. You are perhaps overwhelmed by these emotions amidst the Covid-19 situation is still ongoing, and that the urgency to get the Enhanced Working Capital Loan and Temporary Bridging Loan, received rejection after the long wait for an answer.

As shared in the previous article on some of the favorable tips to get approval on a bank loan during this Covid-19 period whereby the loan rates are at one of the lowest. And still, if you hit a major roadblock - banks reject your SME, you have to think of alternative methods of getting the loan you need. 

As mentioned that even though the government will take in 90% of risk-sharing in the event of any default payment, it is not a 100% approval for all SMEs and the approval process is a long and tiring route. 

This will be a piece of shattering news when you receive the rejection, worse still, just from a simple text or email from the bankers without even knowing the real reason. 

You shouldn't be despair until the very last minute and exhausted all options. 

1. Find Out Like A Detective

To reduce the risk of the loans given by banks, they institute their own set of parameters and requirements and match businesses against them. 

Generally, if you get rejected by any type of loan, a general reply will be that the criteria required are not met and to try applying again next time. 

Probe for an answer to this case, as detailed as possible. And work towards fixing the problem in the short time frame.

A mistake some business owners make is they do not rectify the mistake fast, and they assume that other banks will just approve instantaneously.   

A piece of simple advice is "do not" keep applying after every rejection. It is easier said than done, but finding out the key to the problem is essential. 

If you are not able to get a satisfactory answer from the banker and you are not well versed in the area of finance, you should consult an expert who can give you the right answers, like an accountant or loan broker who is more experienced in this aspect. 

2. Fix-It Like A Carpenter

Once getting the gist of it, it is time to get dirty. Make a list of reasons why the loan is being rejected, and find practical and affordable ways to fix the situation. 

Some may be rectified immediately, while others may take months to fix it for it to be eligible for the banks to review again. It may be due to the director's personal credit score which may not be able to resolve immediately, or it may be due to lack of clarity in accounts receivable and accounts payable records which may hold up on some practices. 

However, most cases are not expected to be resolved with immediate effect, and it takes time in order to arrange matters, such as you may not have collateral to secure that loan, or past revenue shows that the company is not profitable enough, your company age may not be old enough, or if you are in a high-risk classification by the banks and so on. 

3. Work With A Know-how

When some people are sick, they will search online for the medication that may be able to "heal' them, and buy at the nearest pharmacy. While some will know that they are not an expert in this field, will seek advice from a doctor or specialist to solve their situation in the fastest time possible, not taking in more unnecessary risk. There is no hard and fast rule on who is right or wrong, as ultimately the decision lies in our hand. 

So in the world of business loans, it will be better to approach an accountant or loan broker to walk you through the process. It is never an easy task to navigate in the world of business financing, especially you are overwhelmed by your own business. A loan broker will consult and point to you the right direction that is causing that "sickness" and suggest the correct treatment and "medication" for you to get the loan. 

Although bankers who are in charge of your application will be assigned to you once you submit directly to them, they can't provide many alternatives as they are tied to only one bank, and if you are rejected by the bank, they can't do much for you either. Usually, bankers will say that you have failed the bank's parameters and to try again maybe six months later as they cannot do much in the current situation, this will only result in frustration as you need the funding right away. 

With a loan broker, you will get support right from the start, and follow through the whole process even until approval is done, so that you can make the most of the financing to grow your business. 

4. Stop That Conventional Way Of Thinking

It is true that bank loans offer the lowest and most attractive interest rates in the market, and when taking a loan comes into people's minds, banks will be the first in the list. 

The attractiveness increases as the enhanced working capital loans and temporary bridging loans are backed by our government, and interest rates are decreased tremendously. However, SMEs who do not fulfill their set of eligibility are still not eligible to get that loan. 

As such, your thinking might have to change and to explore other forms of financing. There are more and more alternative lending companies appearing in the market to provide financing for SMEs for those who may not be able to secure a bank loan. You may have to know that these companies generally have higher interest rates and shorter tenors. But this type of capital may be able to help you tide through the period or pay for some urgent needs for the company which comes in handy. It will also be able to help you buy time for your business to be ready to apply for a bank loan again. 

The Bottom Line

Let's be realistic. Everyone wants the best for their company. No company will foresee in their business plan that in the event of a bank loan rejection, what will be the next alternative. Yet, business loan rejections are just a fairly common occurrence. 

That should not stop you from getting financing from alternative sources. Use every rejection as a learning tool to position your business for better application. Good businessmen do not let obstacles get into their way of a higher vision. The only way is to move forward, fix what is supposed to be fixed, and work hand-in-hand with an expert who treats your business as important as theirs. 

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