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Hearing the word “no” is the absolute worst. Especially when you hear it in context of being rejected for a small business loan. Getting turned down for financing is just as much of a bruise to the ego as getting turned down for a date—only there’s so much more at stake this time around. After all, your business is your livelihood.
If you’re afraid to apply for a business loan because you’re worried about getting rejected, or you have an loan application in and you’re dreading hearing back from your loan specialist or lender, here’s what should know about facing your fear.
Applying for a business loan is nerve-wracking, but sometimes, it’s also necessary. You need financing to grow any business. If you won’t even try for a loan, you’ll find yourself left with options that could cost you more in the long run.
Without a business loan, your financing options might be limited to high-interest credit cards, generous friends and family members, or private equity investors who will give you an inch today to take a mile tomorrow. Those financing options come with costs. In addition to steep interest payments, you also have a human element to consider, especially if it might take you a while to pay everyone back in full.
But there’s more.
Succumbing to the fear of being rejected for a business loan can actually hurt your company in another way.
If you become so paralyzed by fear of being turned down by a lender that you never bother to apply for a loan, you’re severely limiting your business options. You can forget multiple locations, new lines business, or any other major expansion. You won’t be able to grow your company.
The only equipment you will ever buy will be seller-financed. The only inventory you will ever stock will all come out of pocket (or worse, your savings). The only location you will ever have will be a rented space. Your business will have little actual assets and it will never grow beyond a certain point.
When you think about it this way, that fear could be more expensive than a loan!
Fear of rejection is perfectly natural and reasonable. After all, not all business loan applications are approved. Small business loans approvals are around 25%. Even institutional lenders only approve 64% of applications. You need to understand that you might not hit a home run during your first time at bat. That’s no reason not to try, though!
You need to adjust your thinking—and this is especially important for female borrowers. Data from research conducted at Penn State suggests that women apply for loans 20% less often than men—and they are 20% more likely to be denied trade credit.
Although women do take out mortgages just as often as male entrepreneurs, female business owners are much less likely to pursue leases, loans, or credit lines. Instead, they often put what their company needs on credit cards and make monthly payments—and they pay the higher interest rates that come with them. When female entrepreneurs do borrow money, their average loan size is almost half that of men ($57,097 in 2017 compared to $103,604).
In some cases, fear of rejection might cause you to put off asking for funding when you know it’s time. “In business, it can be difficult to go and ask for funding—or even when negotiating a contract with a vendor, an entrepreneur may not ask for all that they want because they’re afraid of a ‘no’ answer. So these tasks, though they are important, are avoided as long as possible,” explains Tom Panaggio, author of The Risk Advantage. “They tell themselves that they have to make their plan better, their presentation better. They keep pushing it off.”
The reality is that you might not know if your lender will say yes, but you do know that you won’t get a dime if you don’t apply. Instead, approach getting a loan the same you did your business. Make a plan and see it through.
Whether or not your business loan application is approved, keep in mind that this isn’t personal; it’s business. “There is absolutely nothing personal about asking for money and not getting it. It’s just a piece of paper (or numbers on a computer screen),” explains finance expert Amanda Abella. “The truth is, we’re the ones who inject emotion and meaning into money. If someone rejects our offer we’re the ones going into a tailspin over how it’s a rejection of us as a person when nothing could be further from the truth.”
Besides, sometimes getting your loan rejected can actually help you in the long run.
Instead of spending your time worrying about whether you will get approved for a business loan, put your attention on figuring out why lenders approve certain business loan applications. Look at your business plan, run the numbers (again), and see where your company stands from a more objective standpoint.
If you do receive a rejection, don’t give up right away. Ask why right now isn’t a good time for that lender to extend financing. In most cases, you will get a detailed answer and that can help inform the next time you apply for a loan.
For instance, if the lender says that your business plan is missing certain information or that your company doesn’t meet the minimum number of months with positive cash flow for that institution to offer you a business loan, you’ll know that you can come back with confidence when you do meet those standards.
At the end of the day, you often need to spend money in order to truly level up. Business financing can really help at key stages of business growth. Although no one likes being rejected, keep in mind that it’s very common when seeking business financing.
If it happens, don’t take it personally! Learn what you can from the experience, and try again.