Finding a loan for your business can be very stressful and time consuming, so being denied a loan by a lender can be a huge blow. However, being denied is not the end of the process, and there are many ways to change your situation and be approved the next time you request a loan. Three initial steps you should make after being denied include:
- Understand why you were denied
- Remove the negatives from you credit report
- Improve your qualification factors
Understand Why You Were Denied
If you know why your loan request was denied, you can do a better job at fixing the cause and getting ready to request a loan again. Due to the Equal Credit Opportunity Act, you have the ability to ask your lender why your loan request was denied.
This opportunity can only be exercised within 60 days of the loan application being denied, so don’t take too long to request the information. Your lender should provide you with details about why exactly your application was denied.
You may be able to determine this information on your own without having to request it from the lender, but if you cannot figure it out don’t hesitate to ask. By knowing where you went wrong, it will be much easier for you to fix the problems in your application.
Remove the Negatives from Your Credit Report
You now know why your application was denied, so it’s time to look at your credit report as a whole. There are ways to get your credit report for free, so utilize these methods if you are able to. This process of receiving a free credit report has been made even easier due to the Covid-19 pandemic. If there is any information on your report that you feel is inaccurate, you can dispute it and potentially have it removed, which can go a long way towards improving your loan eligibility.
Improve Other Qualification Factors
Two other major factors are important when applying for loans: your credit score and your debt-to-income ratio. Credit score is likely something you’ve heard of countless times. Your credit score will be evaluated by lenders to determine if you pose a risk to potentially not repay your loan. If they decide that you are not a risk, they will likely approve your loan.
A good credit score is normally considered to be 670 or higher. Your debt-to-income ratio will also be evaluated by lenders. Lenders do not want to give you money if you are already struggling to repay the loans you already have.
Most lenders will be comfortable with any debt-to-income ratio that is below 36%. If you improve your credit score and debt-to-income ratio, you will dramatically improve your overall loan eligibility, so don’t forget to look at these two factors.
Improve Your Application with Professional Help
The process of applying for funding can be much easier if you work with the right people and lenders. Find help to improve your chances of financing your business with ByzFunder today.