Working Capital Loan Options When the Bank Turns You Down

Obtaining sufficient financing can be one of the most challenging obstacles a small business has to face. Having working capital is essential to any business; it is the life force of any successful venture.   Simply defined, working capital is the business’ current assets minus its current liabilities.   This money is used in the day to day operations. A positive working capital, or more assets than liabilities, will result in lenders being more disposed to support your company with a loan.   A negative working capital, or more liabilities, than assets will result in lenders being less willing to work with you. Working capital loans may mean the difference between survival and going under.

Unlike traditional business loans, working capital loans are not designed for a specific purpose such as buying real estate or purchasing equipment.   Because it is a short term business financing option, banks rely heavily on how your balance sheet looks.   If your balance sheet does not look good, a traditional bank will not approve a loan.   There are, however, a number of steps to take after being turned down for a loan.

1. Find out why you were turned down.

Don’t take the rejection personally, remember that the decision was based on the information that you provided to the lender.   It was based on predetermined mathematical equations.   If at all possible, make changes immediately to meet those requirements.

2. Review your balance sheet.

Taking a second look at your finances may change your lender’s outlook.   Have you taken the time to keep your balance sheet accurate? Lenders prefer applicants who can provide detailed and accurate financial information.   If you have used an accountant or an assistant to keep your books, learn about the details of your financial situation before approaching a lender. Be prepared with details including inventory, receivables, equipment, and collection practices.

3. Look towards specialized lenders.

A traditional bank may not have the same options that a specialized lender has. Look at a lender that has experience in providing financing specifically to small businesses and specifically the working capital loan. A traditional bank may turn you down, while a specialized lender may have money to lend.

Working capital is vital, but don’t be discouraged if you have been turned down. Review your situation, find out why you were rejected, talk to specialized lenders, and consider non-traditional methods. With those steps, you may find that the initial rejection put you in a better situation for the future. The information you gained while repairing your financial situation will be of value to you long after the need for working capital loans has passed.