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How Bankers, Brokers, and Underwriters Can Help Declined Loan Customers

Nobody wants to disappoint a potential customer, even if it’s a part of your job. It’s a big challenge to have to turn down customers when they don’t meet your loan qualifications. Here are some common reasons why the customers are declined for a loan.

  • They maxed out their line of credit. If a customer uses up all the available funds on their business line of credit, it can be a red flag that they are taking out more debt than they can repay. However, they may have other assets you can’t harness because of the policy, and you can send the applicant to another lender that can do exactly that.
  • They have non-citizen status. It can be more of a challenge to approve a loan if the application isn’t a U.S. citizen. But it’s important to note that a customer can receive an individual taxpayer identification number (ITIN) regardless of their immigration status. Know that you can direct the applicant to funding that doesn’t require a specific immigration status.
  • They have new or limited business history. To hand out a loan, you need to know that the business will be able to pay it back. Thus, if the business hasn’t been around for very long, it can be too risky to allow them to borrow money. It can be a good idea to send them to a lender that doesn’t require a long business history.
  • Their credit is challenged. A business can have a low credit score but be on the rise with promising growth and you still have to decline them. In these cases, it can be best for the applicant to look for funding that doesn’t need as high of a credit score.

However, declining a customer gracefully requires tact, as well as forethought and planning. Your job is still to help the customer and ideally build a relationship that can bear fruit down the line for your business.  There are best practices for going about declining a customer, and we share our top four insights below into navigating the process.

  1. Be straightforward

Don’t beat around the bush. Instead, tell the customer in plain English exactly what your decision is. Whether you go into much detail about why you made your decision is up to you, but you may want to lay low, especially if the cause is because the customer has poor credit. This conversation can lead to anger and frustration, which you’ll want to try to avoid.

Instead, let the customer know in simple terms that they don’t qualify for the terms of the loan due to the available credit information. This clarity reduces the chance of confusion or misinterpretation.

  2. Have answers prepared ahead of time

You want to maintain control of the conversation. Confidence is key — and that’s where practice comes in. If you’re feeling nervous, take time to prepare your answers before you meet with the applicant.

Plan for responses where the customer disagrees with your decision or pushes back. You can write out several potential directions the meeting will go and prep your answers in advance. Thus, you’ll feel more ready to deliver the final answer without needing to get a supervisor or anyone else involved.

  3. Propose alternatives

Make sure the applicant is informed of their other options for funding. Instead of focusing on the fact that you’re denying the loan, bring up what you can offer the client. You can let them know you’re willing to take a second look at a more complete application if their denial was based on missing information. Or you can send them alternative funding sources they would qualify for currently.

The best alternatives to traditional small business loans include:

Invoice factoring

This financing option allows you to leverage your unpaid invoices for up-front cash in as little as 48 hours. Basically, you sell your unpaid invoices to a factoring company, and they pay you for the invoice — and usually take care of getting your client to pay. This option works well for any company that struggles with credit since your approval is based off the strength of your client’s business, rather than your credit.

Materials purchasing

If you need cash for essential construction materials, you can turn to materials purchasing. The lender will buy the materials for you and deliver them to the jobsite — and you pay the lender later. This option allows construction companies to take on bigger projects than they can finance with their current cash flows.

Equipment leasing

If you need to acquire new heavy equipment for your jobsite but can’t afford to buy it outright, equipment leasing can help. It gives you reliable monthly payments and is more affordable than renting equipment. Also, the payments you make on an equipment lease are tax-deductible and will increase your credit score.

Asset-based loans

A company with assets like real estate, equipment, or inventory could qualify for an asset-based loan. The basic idea is that you use your assets as collateral for the loan, so if you fail to make payments, your assets can be taken. This option is flexible, fast and can give you access to more funding than many traditional lines of credit.

Where to direct your denied applicants for funding

Giving viable options to your clients that you have to deny a loan can make the process easier for you and the applicant. If you’re looking to send clients to an alternative funder, Cultiva Financial can help. We offer small businesses several types of funding and are eager to get to work. Let your denied applicants know that we are ready to help them secure the funding they need.

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