What to do if a bank won't give you a business loan

Managing money is one of the key tasks of running a small business. Changes in facilities or staff, acquiring inventory, or just the natural ebb and flow of your industry can all affect your cash flow. This is why business loans are commonplace. They play an important role in financial viability. This said, deciding to take a loan—and selecting the institution to take it from — shouldn’t be done lightly. Before you decide, here are five things you should consider.

1. What do you need the loan for?

This is a question to ask yourself, not to justify that decision to take out a loan, but to clarify the best products and terms for your needs.  Once you’ve determined the purpose of your loan you can pinpoint your best option.

2. How much do you need?

While carrying debt is not, in and of itself, a bad business practice, taking as much as you can get is risky. Your debt load can affect everything from day-to-day operations to your credit score, so after you identify what you need the loan for, put a realistic number on your project.

3. How much time do you have?

If you need funding quickly, you’re going to want to work with a lender that’s equipped to meet your timeline. Traditional bank loan applications are cumbersome to complete, and it can take a long time before you’ll have access to the funds. Private lenders simplify their application process and can get your funding, fast—sometimes as soon as 48 hours, however, the rates tend to be higher than with the big banks.

4. Do you need a lump sum or are incremental amounts better?

Your answer to this question will help you decide the type of loan that’s best for you. Traditional banks offer lines of credit where you can take out payments on an as-needed basis, but if you need your money upfront, you’ll probably want to apply for a term loan. This is a loan that granted in a lump sum with regular repayments until the balance is paid.

5. What is your existing debt load?

Before applying for a loan you’ll need to inventory your current debt load. If you’re already carrying debt, you must first calculate how much more you can afford. Taking on debt is normal—but taking on too much debt will put the company in a precarious financial situation. At iCapital, we’ve helped dozens of small business owners make this calculation. It’s surprising how many people apply for additional funding when it would be the business is an extremely precarious position. Ensure that you are on the path to success rather than bankruptcy by doing the math before submitting your financing application.

In the end, selecting the right institution to borrow from, and amount to ask for, comes down to identifying what you need, what you can get approved for, and what you can realistically pay back. With this approach, you’ll be taking on healthy, planned debt rather than putting your company at risk.

Though unlikely, it is possible that you’ve somehow missed the surprising success and sustained popularity of Marie Kondo, the woman who built an empire on the concept of tidying up. Even if you’ve failed to read any of the self-styled organizational guru’s books on the subject or to binge on the Netflix series, you’ve almost certainly heard people using the now-ubiquitous phrase, “spark joy”. In the past several years, we’ve learned to question whether objects, relationships, or even life choices spark joy, and to do away with anything that fails to meet this criterion. One thing is for sure: Marie Kondo has led the way in thinking about decluttering and organization—two real-world ways to improve efficiency. And efficiency, in the business world, is about as joy-sparking as you can get. Read on to learn more about how to Marie Kondo your business processes for a leaner, more cost-efficient organization going into the new year.

Step 1: Start with gratitude

Especially important if you’re working with a team but helpful even for solo ventures, start by acknowledging your strengths and successes. Decluttering should not be an indictment but rather an evolution. There is always room for improvement.

Step 2: Tackle one area or process at a time

Every business has numerous processes to meet their organizational goals, each with its own peculiarities. Although they may be linked, it is better to begin with one and see those changes through before tackling another. If your supporting processes like accounting or recruitment are most inefficient, start there. If the biggest difference would be made with a change in operational processes, that’s the best place to begin. These are changes that will spark the most joy in terms of employee satisfaction, customer service, or even your bottom line. Having a success story from the start will encourage your team to continue..

Step 3: Perform an audit

On her show, Kondo always begins by laying out all of the contents of an area or room in one place. Her thinking is that you can visualize everything and take stock. For your business process, this could be done with your team during a brainstorm session. On a whiteboard, map out the process from start to finish. Consider everything from the employee perspective and from the customer perspective. Next, mark which steps are working well (in green marker), which are satisfactory (yellow), and which need improvement (red).

Step 4: Time to tidy up

Make a plan of attack for the improvements. Determine who will take responsibility for each piece of work. Set a deadline to come back together to gather feedback on the process changes. Working in pairs or teams can make the work go faster.

Organizational clutter is the natural result of work. Over time, processes degenerate or fall behind current knowledge or technologies. Plan for regular clean-ups, whether they’re once a quarter or once per year, and let your joy be sparked by your business’ efficiency, as tidy as Marie Kondo’s famous drawers of perfectly folded clothes.

It's a fact of business life: All enterprises need money from time to time and it’s up to owners to choose the best lenders for their needs. The big banks benefit from their name recognition and a reputation for stability, but their lending processes are frequently slow and tedious. Even worse, often they won’t even lend to high-risk industries like restaurants or retailers. Private lenders like iCapital are an obvious alternative but some question if they are risky. For Canadian small business owners, choosing between lending institutions can be a stressful exercise. Read on for more on how to make this important decision.

What’s the differences between a bank and a private lender?

Those getting a loan from a big bank can depend on the broad name recognition of their lender and may be able to ask for larger loan amounts. The cost of borrowing tends to be lower as well (mostly because banks steer clear of risky small business investments). On the other hand, the application process can be extremely long and tedious, and small businesses may have more trouble meeting requirements. For quick and lean small businesses—particularly those deemed risky, big banks tend not be a good fit.

Private lenders like iCapital offer an attractive alternative, especially for businesses in retail, hospitality and professional services. Why? The application process is much simpler, often returning approvals within hours and funds shortly thereafter. The setup, too, is easy—replacing annoying bank branch visits with automated account withdrawals. The downside is these lenders generally take on the accounts banks see as risky, which means borrowing money from a private lender may cost you a little more.

In short, private lenders—like the big banks—offer financing opportunities to small businesses. Whichever lender you choose, the only risk is if you cannot repay.

Avoid this common mistake to mitigate your risk

When an applicant asks for a loan, they have to be responsible in their request to make sure they can meet the repayment terms. Here are two of the most common mistakes small businesses make and how we, at iCapital, help people avoid them.

• Requesting a loan for more money than they can repay
  Understanding how much money you need and how much money you can afford to borrow can be tricky. If you ask for—and receive—too much, repayment can become impossible, putting your business at risk. At iCapital, we pride ourselves on the care we take with our clients right from the application stage. To this end, we employ underwriters who follow strict our guidelines when they analyze and approve companies. Our underwriting standards ensure your company will be able to meet your obligations on the loan.
• Stacking loans
  Some companies take on multiple loans at once, even taking them from two different lenders at once to avoid detection. We actively discourage this practice, and will work with you to determine exactly what you can afford to borrow. Our goal is to give customers such a positive experience that they’ll come back to us again in future. Think of us as long-term relationship kind of people, versus serial daters. (Hint: keep an eye out for the serial daters out there who aren’t looking out for your best interest!)

Eventually, your business will need to find a lender. While there are numerous ways to measure the pros and cons between big banks and private lenders, perceived riskiness should not be one of them.