Steps to take after a denied credit application

If your business credit application has been denied, consider taking these steps that might be able to improve your credit profile.

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What to Do When Your Credit Application Has Been Denied
Published: August 08, 2016

If your application for business credit was turned down, use it as an opportunity to understand why and learn how you may be able to improve your credit profile before you apply again.

"While a personal credit score might be a key factor, lenders also focus on other factors related to your business's financial performance."

Determine why the credit request was denied

There are lots of reasons a lender might be unwilling to extend credit. They can include:

  • Insufficient credit history

  • No proven ability to pay off a loan

  • Derogatory items on a credit report such as late charges, a lien or a bankruptcy

  • Lack of collateral to secure a loan

When a loan or other credit type is denied, the lender will usually send a letter letting you know why. At Wells Fargo, a banker will often contact the applicant and discuss the decision in further detail.

They might also connect you to Wells Fargo's Credit Coaching service, where a credit specialist can discuss the decision with you and share resources that may help you strengthen your business credit profile and potentially increase the likelihood of qualifying for financing in the future.

Understand what lenders look for

While a personal credit score might be a key factor, lenders also focus on other factors related to your business's financial performance. In other words: your business's track record matters. When reviewing an application, a lender will consider:

  • Is the business viable in the short and long term?

  • Are the owners making payments on time?

  • Do they maintain a stable, positive cash flow and/or cash reserves that can support current and future payment obligations?

  • Do they have an existing banking relationship?

  • And while a smart, detailed business plan is not required, it certainly helps lenders understand the type and amount of financing an applicant might request.

Your personal credit history matters a great deal, too. Especially in a business's early days, lenders may rely more heavily on personal credit history when evaluating credit risk.

Consider secured credit options

When you're ready, make small forays into business financing using secured loan products. Secured credit may be an option for small businesses that might not qualify for unsecured credit and those seeking to establish or rebuild credit. For instance, you can spend some time building up your savings so that you can use it as collateral for a credit card or line of credit that is secured by the savings. Vehicles or equipment might also be used as collateral.

Obtaining business financing without an established credit history can be difficult. The key is to work at building a positive credit profile with smaller loan products and demonstrating personal financial responsibility by consistently making all debt payments on time.

Learn more about credit applications and what lenders consider. Our credit coaching from Wells Fargo can help.