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How To Reverse a Business Loan Decline Fast

There are several ways to reverse a business loan decline into an approval fast.  A lot depends on the decline reasons.   Some can be handled in days and you can change a business loan decline into an approval with these easy fixes.

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Reverse a Business Loan Decline: 7 common denial reasons

    • Derogatory Credit 
    • Debt to Income Ratio too high, or cannot afford new payment 
    • Insufficient Cash Flow 
    • Too many recent inquiries
    • Ownership percentage not enough
    • Unacceptable or no Financial Statements and Tax Returns
    • Recent overdrafts or low bank balances

Turn these Denials into Approvals now

Denied? How to change that into approved!

1. Derogatory Credit .

Derogatory credit and credit bureau scores that are too low are among the most common decline reasons.    Many people believe it takes years to improve their credit file and that they have to pay a credit repair agency to fix their credit.

Incorrectly Reported Credit Bureau Information:

Many times, information reported by the credit bureau is incorrect.    Review your credit report and look for inaccuracies.   You can often get corrections and deletions updated within weeks.   Once you have identified the incorrect information, you can dispute it yourself with the credit reporting agencies, or hire a credit repair agency.

You will have already done much of the work just by reviewing your credit file in detail.    Doing the rest yourself lets you follow up faster and dispute it again if the credit agency puts the same derogatory information back on your file.

Outdated Credit Bureau Information

Sometimes outdated information hurts your credit.   A debt may still be showing on your credit that has been paid.   A balance on a current account can be much higher on the bureau than the true balance.    Some creditors do not report every month. Disputing or updating outdated information can often increase your credit scores.   Lenders can see your level of debt is less than what the bureau shows.   That improves your ability to pay new debt.

Scores Too Low:

Often, your current scores are too low.   Taking the actions above should increase your score because less derogatory and outdated information will be on your file.    Your credit scores will jump quickly and may trigger the lender to reverse a business loan decline.   Other funders may approve your business with higher scores as well.

2. Debt to Income ratio too high or cannot afford new payment.

Debt to income ratio is the percentage of fixed monthly debt divided by monthly gross income.    Lenders often calculate this percentage as part of their review.

For example:   A borrower has monthly income of $5,000 and fixed debt of $2,000.  Their debt to income ratio is $2,000 % $5,000 = 40%.

If a borrower’s percentage is too high, they may be declined.  Debt to income ratios only look at this percentage.   Businesses with higher gross sales are more likely to have disposable income with the exact same debt ratio.    If you can afford the payment, then document your cash flow.   Contact the lender and show them your disposable income figures for the business.  Prove that you can make the payment and ask to appeal the decline.

3. Insufficient Cash Flow 

Lenders may look at your overall cash flow.    Many require a minimum amount of annual business sales to even be considered for financing.  Many lenders calculate the maximum loan or mca as a percent of your monthly revenue.

Funding sources that decline for this reason often do so in part on the most recent year’s tax return figures.    Your most recent business tax return is old information.   Provide a year to date YTD Profit & Loss statement and Balance Sheet when the current year is stronger than the previous year.   Doing so may also allow the lender to justify approving a request they originally declined.

If your current year is about the same as the previous years, then your business would need to identify other debt or income information that could potentially reverse the decline.   For example, large new customers that have been added in the current year will increase revenues substantially.

4. Too many recent inquiries. 

This decline reason may still happen if the owner(s) have recently been making purchases that require loans, or new services that require a credit check.  Lenders have become more savvy at assessing these, but their automated reviews are not perfect and may not account for credit inquiries that should not be counted.

Many financing programs use a soft pull instead of a hard pull.   However,  some programs use a soft pull initially to make an offer but still do a hard pull later before closing.

If a lot of your credit inquiries are from shopping for consumer goods, or related to living expenses such as utilities, then document these.   Contact the lender and show them what the inquires were for, and they may re-consider their original decision.

5. Ownership percentage not enough. 

Applicants must have at least 80% or higher ownership to be able to close most business loans on their own.   Many lenders require a higher  percentage such as 95%, and often full 100% ownership.

Discuss the decline with the other owners.    100% ownership is required for many business loans so they may be required to sign.   Your business will eliminate itself from good business loan options if one owner with less than 100% ownership wants to get funding on their own.

There are exceptions for owners with very strong credit and assets. Owners with credit score over 700  and a strong personal financial statement may be able to guarantee a business loan by themselves with less than 100% ownership.  However, many lenders will not consider any request with less than 100% of the owners applying, no matter how strong any one owner is.

6. Unacceptable or No Financial Statements or Tax Returns.

Some business loans require financial statements that the applicant does not have and is declined for as a result.    This usually includes the most recent 2 to 3 years personal and business tax returns and current years’ interim financial statements.

Gather and provide the missing information and request the lender re-consider the application.
In other cases, the lender determines that the financial statements were not acceptable.   This normally means the gross or net business income was not high enough, or not enough the cover the new loan payment.   Some lenders will decline just for having one lower sales year out of the last three years.    They want to see steady or increasing revenues each year or they will decline the request.

Alternative Options: Your business should look for other loan programs and lenders if this is required.

7. Recent Low Bank Balances or Overdrafts. 

Even with a strong business and personal profile, your business may be declined just for recently having lower bank balances or overdrafts.

Your business may need the loan because of a recent slow period.  Many lenders are not forgiving to recent slow cash flow and overdrafts.  Applicants believe this is a good reason why they should get the loan. Lenders believe is it a good reason why a borrower cannot pay and therefore decline the request.

Alternative Option:   Look for another lending program, or wait 30 to 60 days for your cash flow to rebound some, then apply.     If you can wait, first ask the lender if it will make a difference with them.   Consider other programs when the lender does not commit to seriously reconsidering your request later.

Discuss your recent cash flow or overdraft issues in depth with the lender that declined you.  Too often they tell you they will reconsider it, but are still very unlikely to change their original decline to an approval.   Many lenders must consider all requests, whenever made.   Talk to the lender about fixes to previous issues before re-applying.

FAQ: Frequently asked Questions on how to reverse a business loan decline fast:

How can a decline be reversed?
Decline reasons can very often be quickly corrected or improved by making relatively easy updates or changes, such as ownership percentage.  Ask the lender if the changes you make may cause them to reverse their decline before you re-apply.
Can they be reversed fast?

Many changes can be made within days that allow a lender to reconsider the request.   Other changes will take longer but may still be accomplished within 30 or 60 days.

What if I can’t wait?

If you do not have the time to make corrections, then the best approach is to consider another type of funding that will not decline you for the same reasons.    Talk to other lenders in advance to address the decline reasons before applying.

Conclusion: Change a business loan decline into an approval

Do not believe that nothing can be done after your business is declined.   This is not true, so turn declines into approvals today.  Having documentation, a strong rationale and persistence are key to turning a no into a yes.

Sometimes the wait may be weeks, but the decline can be reversed in the end.

Your business will understanding what can be corrected and this is information to use in your favor to get the funding needed!