It is disappointing when your loan application is refused. So what can you do about it? Well, be comforted with the fact that there are other options you can explore.
If possible, try to find out why your loan application was refused. This is critical information that will help you with future loan applications. Just be aware that many lenders do not have good systems in place to enable them to easily provide you with details as to why the loan application failed. So, expect to have a wait a while to find out the reasons.
The banks do actually recognise that they have a serious problem in terms of their feedback mechanisms, especially when it involves business applications that have been rejected. However, you might need to get a little pushy to make sure that the people you are dealing with make the effort to find out the information you need.
Some lenders are beginning to take the issue very seriously. For example, Business Partners, a niche SMME lender, allocates a mentor to go and spend time at the businesses of emerging entrepreneurs, for a day. This is for businesses with applications that have reached a certain point in the approval process, but are then turned down.
The feedback you received describing why the loan application was refused is key to moving forward. It could be the lender is willing to lend you a lower amount, or willing to consider a different type of finance package or it may be that you need to apply to a different lender.
There are no less than 8 different types of finance suited in one way or another to the finance you need, for example: Working capital. If you don’t succeed with one, you may be successful with one of the others.
If the amount of finance is an issue, then consider a more phased approach to your plans. See if you can amend your plans to implement them in stages, once you have raised finance for the first stage and proved that you can be trusted to repay the loan according to the terms of the contract, raising finance for the remaining growth stages will be much easier.
If you needed finance to buy equipment, it will be worth exploring the option to rent. Some suppliers are happy to arrange rental contracts with an offer to buy at the end of the rental term. It is obviously cheaper to buy a piece of equipment, a vehicle or premises if a business is going to use it constantly. But it’s a whole different story if you only occasionally use the equipment or vehicle. If that is the case, the best advice is to consider the advantages of renting. A machine standing idle is expensive, even if the business owns it and has paid for it in full. It embodies capital that could have been used more productively elsewhere in the business. Read the module Do you need finance for equipment and machinery? and consider making applications to a variety of different lenders.
If the need for finance involves improving competitiveness, business growth or expansion within government priority sectors then explore whether government grants and incentives could be of use. Many of these funds target specific sectors that the government is keen to build and some others are aimed specifically at improving the competitiveness of businesses or assisting previously disadvantages business owners to expand.
There are a huge number of government grants and incentives and you can either read the module Summary of Government Funds to read about every single fund or you can take the Finance Readiness Quiz. Answer all the questions asked in the quiz and you'll be provided with a finance readiness status and a list of governmentfunds that match your specific needs.
You don’t have to do it all. Plenty of businesses outsource regularly. For instance, a car repair shop does not necessarily need its own auto-electrician. Any business operation can be divided up into sections that can be outsourced instead of built up from within. It all depends on the costs and advantages, which you need to weigh up before spending capital.
A massive cost saving for growing businesses is to keep the payroll as low as possible, until the uncertainties of the first few years have blown over. Many businesses have a set of part-time staff members who are contracted only when work is available. The Department of Labour has recently amended the regulations that apply to contract staff, so do make sure you had read these and understand how to set up the contracts to protect the business.
Each of the modules in the Learn about finance section discusses the various finance options available to small businesses. If you haven’t already read these, please do so as this will provide you with a number of options on how to raise finance.
Don’t give up hope. I know it's easier said than done, but take a look at the story of Stephen Larkin and Fuzi Maqubela, who applied no less than 9 times for a bank loan to fund their mining technology business, and eventually succeeded. Read about it here: Entrepreneurs succeed after 8 bank rejections. It may also work for you!
Finfind provides its services free of charge to businesses seeking finance. Our primary purpose is to link SMEs with all the relevant finance providers and finance products that match their funding needs. As a matching service we are not required to be a registered finance provider as we do not loan money directly.