Why Your Business Loan Has Been Rejected?

Refused a Business LoanYou maybe disappointed if your small business loan has been refused. No-one wants to apply on the grounds of being rejected. 

It’s a common occurrence in 2024 for SME’s to be knocked back for finance, we take a look at why your application may have been declined.

Whether your company is a start-up or well-established, there can often be a number of hurdles to jump when it comes to attaining critical business finance.

If your bank or other potential source of finance has refused your application, it could be down to a number of reasons.

Reasons why business loan has been rejection

If your business loan application was not approved, it can be discouraging, but it’s essential to understand the reasons behind the rejection so that you can improve your chances in the future.

Here are some common explanations for loan rejections and ways to address them:

  1. Applied with a Traditional Bank: Traditional banks may have stringent lending criteria, making it difficult for some small businesses to qualify for loans. In this case, consider exploring alternative finance providers that offer more flexibility and specialized loans for your industry.
  2. Business Not Established Enough: Younger businesses might find it harder to obtain financing due to a lack of credit history. While securing unsecured loans might be challenging, you can explore lenders that offer secured commercial loans, where you provide collateral to back the loan.
  3. Poor Credit Rating: A low business credit score can significantly impact your loan approval chances. To improve your credit rating, try to take on some form of business credit, pay bills and credit repayments on time, and avoid multiple credit applications at once.
  4. High-Risk Industry: Some lenders might avoid industries they consider high-risk. However, there are alternative lenders that specialize in providing funding to businesses in these sectors. Look for lenders with products catered to your industry’s specific needs.
  5. Cash Flow Challenges: Lenders want to ensure that your business can make regular loan repayments. To demonstrate healthy cash flow, conduct accurate cash flow forecasting to identify and address potential issues proactively.
  6. Lack of Collateral: If you don’t have enough collateral to secure the loan, consider alternative financing options such as invoice finance, where you can borrow against unpaid invoices.

By understanding the specific reasons for your loan rejection and taking proactive steps to address them, you can increase your chances of getting approved for a loan in the future.

Additionally, consider working with a financial advisor or consultant who can provide guidance tailored to your business’s unique situation.

Bank referral program

The Bank Referral Program, established under the Small Business, Enterprise and Employment Act 2015, is a valuable initiative designed to assist small and medium-sized enterprises (SMEs) in accessing much-needed financial support.

When SMEs approach a traditional bank for a business loan and are declined, the bank is legally obligated to provide a reason for the rejection and refer the business to an alternative finance provider.

This scheme aims to address the challenges faced by businesses in meeting stringent lending criteria set by traditional banks, thereby promoting greater financial inclusivity.

By encouraging SMEs to explore other financing options through alternative lenders, the Bank Referral Program fosters a more diverse and competitive financial landscape, enabling businesses to find suitable funding solutions that align with their unique needs and circumstances.

Frequently asked questions

Why do business loans get rejected?

Business loans get rejected due to problems with credit and problems with income. Usually you will receive what's called an adverse action letter from the lender explaining the reasons as to why you were rejected for a business loan.

Why was my business loan rejected by the bank?

There could be several reasons why your business loan was rejected by the bank. Some common factors include a small business applying with a traditional bank that has stringent lending criteria, a relatively new business lacking an established credit history, or a less-than-favorable credit rating. Additionally, your business may be operating in an industry considered high-risk by lenders, or you might be facing cash flow challenges that raise concerns about repayment capabilities. To improve your chances of loan approval, consider exploring alternative finance providers, building a strong credit history, and accurately forecasting your cash flow to demonstrate financial stability.


Facing rejection for a small business loan can be disheartening, but it’s essential to view it as an opportunity for growth and refinement. Instead of dwelling on the setback, focus on understanding the reasons behind the rejection and use this valuable feedback to improve your business’s financial standing.

Take the time to reassess your business plan, address any weaknesses or gaps, and strengthen your creditworthiness. Consider seeking advice from financial experts or business mentors who can provide valuable insights. Additionally, explore alternative funding options, such as crowdfunding, angel investors, or government grants.

By demonstrating resilience, adaptability, and a commitment to your business’s success, you can overcome this obstacle and position yourself for a more successful loan application in the future. Remember, setbacks are stepping stones, and with determination and strategic planning, you can turn this experience into a stepping stone toward achieving your entrepreneurial goals.

Business loans are just one funding option available to UK based business. Invoice Factoring is another great way to fund a business, should you like to know more, contact us today to get the finance you need..

Lee Jones profile picture
Business Finance specialist at Invoice funding

Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.

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