Finance is the lifeblood of any business. You need money to operate, survive and grow. It’s no surprise that many companies rely on external funding to give them the cash boost they need to achieve their goals.
When it comes to applying for external finance, rejection is sadly familiar. In 2021, a third of SMEs were denied funding. The most recent quarterly Small Business Index found successful funding applications were at the lowest level on record.
Rejection happens to many companies but isn’t the be-all and end-all. Many businesses go on to raise finance elsewhere after being turned down. The key is finding an alternative route that suits your needs and improves your chances of success.
This blog gives 9 options to pursue after getting a ‘no’ from a funding provider.
The first thing you need to do is to learn the reasons for your rejection. The first step to bouncing back from funding rejection is understanding why you were turned down.
There are various reasons a funder may choose to say no, including your risk level, application issues, lack of security etc. Knowing exactly why it happened to your business will enable you to take the right action to address the obstacles and improve your chances of success next time.
Some funders will tell you why they reject you upfront, while others won’t. However, there’s no harm in asking – as long as you do so in a calm way – so you can move forward effectively.
Apply to other lenders
Lenders have varying criteria they require when accepting businesses for funding. If one turns you down, another may approve you, even if they offer a similar product.
Review their eligibility criteria if this is available, as it will enable you to uncover your business’s suitability.
If you believe your rejection is due to lender preference, it is worth attempting other lenders. It won’t always work – but even if you face rejection again, it’s a sign that you must try entirely new avenues.
Switch tactics
If you’re struggling to raise finance, it’s a sign you need to change tactics.
Fortunately, there are plenty of options on the market today, giving you more routes to pursue. If you’ve failed to raise equity funding, it might be worth trying debt funding instead or vice versa.
If you’ve already chosen debt versus equity, it’s wise to explore other forms of funding under the same umbrella – such as swapping commercial loans for an invoice facility or angel investment for venture capital.
Being open to new tactics will increase the chances of finding a fit.
Try alternative finance
Alternative finance has become increasingly popular among UK SMEs. Its main advantage is offering increased access to funding for those who have struggled with more traditional routes.
Alternative lenders and investors tend to be more flexible and open to risk. As such, they serve a more comprehensive range of needs, meaning that businesses previously cut out of finance may find ideal solutions.
Research alternative lenders’ offerings to see if any suits your needs – if yes, it’s probably worth applying.
Focus on investment
If you struggle to get debt funding, it may be time to consider investment. Investors tend to be more open to risk as they’re not offering a loan to be repaid – instead, they want equity in a promising enterprise. If you have been deemed ‘too risky’ in the past, perhaps due to your financial history, it could be the better option.
Some investment types, such as venture capital, are even tailored to high-risk, high-reward start-ups.
That isn’t to say equity funding is easier to get accepted for. Investors will still need to be convinced of your ability to operate a profitable company that offers ROI, so you need to have a compelling pitch and a strong business plan.
Optimise your application
Many forms of external funding require you to supply application documents. A common reason for rejection is because your application isn’t strong enough – including making mistakes that can be easily avoided.
Sometimes all that is needed to improve your chances of success is to re-optimise your application. Ensure you are honest but aim to meet a lender’s criteria. You also must ensure you have all the necessary documentation and it’s compiled to represent your business positively.
Our tips for creating a funding application will help.
Accept smaller amounts
The amount a funder offers your business will be dictated by how reliable you are perceived to be, what you intend to use it for and your ability to pay back the money. You might sometimes face rejection because you’ve asked for more than the lender is willing to give.
For a better chance of being accepted, you may need to be open to smaller amounts of funding.
If you have a set amount you wish to raise, this doesn’t mean you still can’t meet your target. Instead, you may have to pool finance together from various sources until you fulfil your goal.
Use a personal guarantee
Risk is a significant factor in your eligibility for funding. Risk-averse lenders look for security to back up any finance given in the hope that they can recoup their funds by repossessing them if you default on payments.
If you don’t have security to offer, you may be asked to sign a personal guarantee instead. The guarantee essentially declares that if the business doesn’t keep up with repayments, you will pay it using your personal finance.
It could encourage lenders to fund you where they may otherwise say no. If you are not willing to offer a personal guarantee, it is likely to reduce the amount that you are able to borrow.
If you are signing a personal guarantee, remember to protect yourself with insurance that minimises financial pressure.
Work with a broker
If you have faced rejection and aren’t sure how to move forward, consider working with a commercial broker.
A broker will understand multiple options in the market that could be suitable for your business, including those you may not have tried. They’ll also be well-positioned to advise you which will most likely accept you.
They often have access to contacts that move you forward in your funding journey and help you optimise your applications.
Keep an eye out for emerging options
The external finance landscape is constantly adapting. New products come onto the market regularly, with alternative funders disrupting the status quo with innovative solutions.
Staying on top of the financial market and any new schemes and options is recommended, but this is also something a commercial finance broker is constantly doing.
The ideal fit for your business could be just around the corner.
Conclusion
Being rejected for finance is never ideal. However, it’s crucial to pick yourself back up and try again.
By understanding the reasons for your rejection, readjusting your choices and considering alternative routes, you will be able to uncover other options that are more likely to accept your business.
Eventually, you will find the right fit and secure the funding you need to move forward.
If you require funding for your business, we will help you find the ideal solution – even if you have previously faced rejection.
We have access to a wide range of funders, enabling us to match you with someone who suits your needs and eligibility. We can also work with you to improve your applications to maximise the likelihood of success.