Your Business Credit Card Application was Denied, Now What?

You’ve applied for a business credit card and the application hasn’t been approved, what do you do?  A good place to start is to investigate the reason behind the decision.

Credit History Factors
If your business is a sole proprietorship, you may be denied based on your personal credit history.  If your credit history is bad, you’ll need to work on improving it in order to qualify for a credit line, just as you would with your personal situation.  If you have a larger organization and you’ve incorporated it, the business has its own independent identity and therefore will apply for credit on its own.

Why Was I Denied Credit?
As with any credit card application, you’ll get a notice in the mail about why you’ve been denied credit.  Generally, this takes several weeks to go through.  If you are very anxious, you could call the company’s customer service line (usually provided in the Terms of Service on your application) to inquire about the reasons.  Most often, the reason is either you don’t make enough money through the business or your personal credit is not stable enough.

Improving Your Business Credit
The best way to get yourself out of this picture is to work on improving your business’s credit identity or improving your own.  Pay down debts you have, improving your long term credit history by using smaller lines of credit you may already have, and pay your bills on time.  If possible, secure a pre-paid business card using the business’s federal tax id number to begin building its credit if it is not yet established.

These factors show that you are a responsible borrower and help the company to insure you’re worth the risk.  If your personal credit is getting in the way, you may wish to contact a lawyer about incorporating your business which will give it its own identity, free from your own.  Talk to your attorney about the benefits of doing this for your business.

Ways to Raise Capital
If you are in need of capital for your business, you may not have months or longer to wait for improvements on your credit score to happen.  There are several options available to you. 

Borrow from a Local Bank
Get a loan from a local bank that you’ve done business with in the past.  Request a line of credit through them, but first outline a business plan to them, showing the executives exactly where your income comes from and how reliable it is.  While you can’t haggle with the internet companies, you can do so by picking up the phone, too. 

Apply for a Secured Credit Line
You may be able to get a credit line based on the value of assets you have in your business.  If you have expensive equipment that is bought free and clear, secure a loan on its value.  If you have property that is for the business that you own, you may be able to tap into the equity there.  Lines of credit like this are often affordable and they often give you the opportunity to prove your value to other lenders over time.

Apply for Another Business Card
Just because one credit card company turned you down doesn’t mean another will.  However, be cautious as you consider applying for other business credit cards.  Applying for too many will negatively affect your credit rating because it shows a pattern of being denied credit, which can raise a red flag.  Instead, apply for one or two, find out why you weren’t approved and look for another option for borrowing.

Equipment Leasing Program
If you are still having trouble obtaining capital and you have equipment that you own, you can consider an equipment leasing program. Depending on the type of equipment, the leasing company will purchase it from you, allowing you to keep it while you pay the lease payments.

Peer to Peer Lending
Another option if you need a short term loan is to try peer to peer lending using either Lending Club or Prosper. These companies allow you to post a profile requesting money. A pool of potential lenders will view your profile and potentially fund your loan request. If your loan request is funded, you will be told the interest rate and given the choice to accept the loan. If you choose to accept the loan, you will pay the site back directly on a month basis until the loan is repaid in full.

Factoring – Selling Your Invoices
If you have accounts receivable, you could consider factoring. Factoring involves selling your invoices at a discount so that you can obtain your company’s cash quicker. The factoring company will purchase your invoice from you, typically paying you 80% of the total up front.

From there, they will manage the collection of the invoice. Once the invoice has been paid, the factoring company will pay you the 20% remaining on the invoice minus their fees. Factoring companies charge anywhere from 1%-5% of the invoice total based on a variety of factors.