A rejection feels like a dead end, but is often simply an indication that the application file or structure does not yet align with what the lender requires. This article discusses common reasons and how to move forward.
A rejected finance application is frustrating, especially when the investment or working capital is crucial for moving forward. At the same time, a refusal is rarely the end of the road. In many cases, the cause does not lie with the business itself, but with how the application was structured, which institution it was submitted to, or a temporary situation that can be financed using a different approach.
This article discusses the most frequent reasons for rejection and practical steps you can take to secure finance after all. You can also use the finance calculator beforehand to obtain a more realistic picture of what is achievable.
Common reasons for rejection
- Insufficient demonstrable debt-service capacity based on historical or projected cash flow
- Insufficient equity or a debt-to-equity ratio that the bank deems too risky
- Insufficient or insufficiently marketable collateral for the requested financing structure
- An incomplete or poorly substantiated application, preventing the lender from fully assessing the risk
- An application that does not match the risk profile or sector focus of the specific lender
Repayment capacity: the core of virtually every assessment
Banks and other lenders essentially test the same question every time: can the business service interest and capital repayments from operational cash flow, even if turnover falls short? If the application was rejected on this basis, it is worthwhile scrutinising the underlying assumptions in your forecast and ensuring they are sufficiently substantiated and conservative.
Sometimes the issue is not that cash flow is structurally inadequate, but that the requested financing facility does not match the cash flow pattern. For example, a repayment schedule that fails to align with seasonal turnover patterns can lead to a rejection, whereas an alternative repayment profile would be feasible.
Collateral and equity: not an insurmountable barrier
A shortfall in collateral or equity is often perceived as an absolute barrier, but there are several ways to address it. Consider a guarantee through the Borgstelling MKB-kredieten from RVO, where the government assumes part of the bank's credit risk, or subordinated loans that de facto act as quasi-equity in the eyes of a bank.
It can also help to split the financing requirement: one portion via a standard secured loan, and another via a structure less dependent on collateral, such as invoice factoring or asset leasing.
The application file itself as a reason for rejection
A substantial proportion of rejections has nothing to do with the underlying financial health of the business, but rather with the quality of the submitted dossier. Missing annual accounts, an unsubstantiated forecast, or a business plan that does not align with the requested finance type provide a lender with insufficient grounds to make a positive decision.
In the event of a rejection, always ask explicitly for the reasons. Many lenders are transparent about this, and that feedback is crucial in determining whether resubmitting with a better-substantiated file makes sense, or whether there is a more fundamental issue that must be addressed first.
Exploring alternative lenders and structures
Not every lender shares the same risk appetite or sector focus. An application rejected by a major high-street bank may well suit an alternative funder, a regional investment fund or a crowdfunding platform, simply because the risk assessment and criteria differ.
Following a rejection, it therefore makes sense not only to refine the application, but also to reconsider which type of funder and which financing structure offer the best fit. Independent debt advisory can help make this evaluation systematically, rather than trailing from bank to bank with the same proposal.
When a rejection is a signal to restructure
In some cases, a rejection points to a deeper underlying problem, such as excessive legacy debt or structurally depressed profit margins. In that scenario, submitting a new application should not be the first step, but rather a reassessment of the financing structure as a whole, potentially via refinancing existing debt on improved terms or over a longer maturity.
Do not delay this reassessment. The earlier a structural issue is identified, the more room there is to work out a solution with lenders, rather than reacting only once liquidity is already under strain.
Concrete next steps
- Ask the lender explicitly for the reasons for rejection; this is essential for determining a targeted next step
- Assess whether the reason lies in cash flow, collateral, equity, or the quality of the application dossier
- Investigate whether an RVO guarantee scheme or a subordinated loan can improve fundability
- Improve the application dossier with a substantiated, conservative forecast before submitting a follow-up application
- Consider a different funder or type of financing, and seek independent advice if desired
Frequently asked questions
- Can I resubmit the same application after a rejection?
- Resubmitting an unchanged application to the same funder usually leads to the same outcome. It makes more sense to first establish the reason for the rejection and adapt the application file or the financing structure accordingly.
- Does a rejection mean that my business is not fundable?
- Not necessarily. Rejections often stem from a mismatch between the application and the specific criteria of a single funder, or from an incomplete file. A different funder, a different financing structure, or a better-substantiated application can still lead to funding.
- What is a guarantee scheme and how does it help in case of rejection due to collateral?
- Under RVO's Borgstelling MKB-kredieten, the government assumes part of the bank's credit risk, meaning a shortage of collateral is less likely to lead to a rejection. Check with your bank or adviser whether this is an option for your situation.