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The Next 5 Steps To Take After You’ve Been Denied A Small Business Loan

First things first: Ask the lender exactly why you were denied. Then, try, try again.

Entrepreneur

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Let’s say you put together a business plan. You did the math to figure out exactly what you needed. You researched your small business loan options, diligently completed the paperwork and even did your little “good luck” dance as you clicked the “submit” button on your application. But then, your worst fears came true: You were denied that small business loan.

Let’s face it: There’s almost nothing quite as discouraging for an entrepreneur as seeing your business dreams halted by the decision of a single lender. You might feel rejected, have no idea what to do next and even start to question whether your grand business plans were ever meant to come true in the first place. But here’s the good news:

Of the many entrepreneurs who are denied a small business loan after their first application, most do go on successfully obtain financing with later applications. The key is to figure out why your application was denied, take steps to improve your credit and financial standing and choose the right loan product for your business – before trying again.

Don’t let a single denial hold you back from pursuing your small business goals! Here are the five steps you can take right now to ensure that your next business loan application results in a resounding yes.

Related: Is Venture Capital Right For You?

1. Request an explanation from the lender

Once a loan officer has given your application that red stamp of denial, you’re not likely to change his or her mind. Most lenders, however, will be willing to provide a letter of explanation detailing the reasons that your business loan application did not meet their requirements.

Understanding why you’ve been denied a small business loan will be critical as you seek to successfully re-apply in the future – and the answer might not be as obvious as you may think. A letter of explanation from your lender will allow you to address those specific concerns before seeking funding again in the future.

2. Check your business and personal credit reports

If you’ve ever bought a house or a car, or even applied for an apartment lease, you’re likely very familiar with your personal credit score and the impact it can have on your access to financing. But did you know that as a small business owner, that personal credit score also weighs heavily on your access to a small business loan?

That’s why, upon being denied a small business loan, one of your first steps should be to check your personal credit report and score for any discrepancies or forgotten financial woes that may have contributed to the denial.

Be sure to check your credit report with all three major reporting agencies – ExperianEquifax and TransUnion – as different bureaus may receive and report different information about your credit history. Should you find any errors on your credit report, reach out to the agency, in writing, to have the information corrected immediately. You don’t want an error to impact your ability to get a loan.

Along with your personal credit, your business also has its own credit report and score, which factors into lenders’ criteria. For most small businesses, however, the challenge of business-credit reporting most often stems from a lack of credit – particularly if your business is relatively new or you’ve never sought a loan before.

Work to build up your business credit by asking vendors, creditors or even the landlord of your retail property or office space to report your payment history to major business credit reporting services, including Experian, Dun & Bradstreet and Equifax.

3. Take steps to improve your business’s financial standing

business-financial-managementWhile your business and personal credit scores will typically be the most influential factors in a lender’s decision process, the internal financials of your business – particularly the strength of your annual revenue, cash flow and business savings – will also be considered.

Taking an objective look at these factors from your lender’s point of view may help you to determine what steps you can take to either improve your financial standing or choose a loan product that will be a better fit.

The best way to do this? Take a look at what’s called your debt service coverage ratioor DSCR, for shortThis simple formula is the tool that lenders use to determine whether your business has the necessary cash flow to make your loan payments consistently and on time.

Related: 6 Money Management Tips For First-Time Entrepreneurs

Don’t know what a DSCR is? Here’s the basic formula you’ll need to calculate your debt-service coverage ratio, including your anticipated loan as part of your calculations:

Annual net operating income + depreciation and other non-cash charges

Divided by interest + current maturities of long-term debt

A debt service of less than 1 indicates that your business’s debt will exceed available cash flow, meaning your loan will surely be denied. Most lenders look for a higher DSCR – at least 1.25 – with a ratio of 1.5 or even higher being ideal.

Even if you’ve been denied a small business loan because of a low DSCR, you may not be able to quickly increase revenue or reduce expenses in order to re-apply.

If this is the case, consider seeking a lower amount of funding – at least at the start – in order to increase your chance of approval until you can build up your business’s financial standing.

4. Consider alternative loan products

We can’t say this enough: A denial from one lender on one loan application is not  a “no” for all time. Variations between lenders’ standards, the requirements different loan products have and the amount and terms of your financing can often mean that even without making major changes to your credit or your business finances, you may still be able to obtain a small business loan relatively quickly if you explore your options.

5. Apply carefully the second time

Beyond the challenges of bad credit or your choice of the wrong business-loan product, there are simple mistakes or oversights on the business loan application that could be the reason you were denied.

Did you have all of the right documents? Did you triple-check your identifying information and every other aspect of the application form for accuracy? Did your balance sheet and profit and loss statements match the business bank statements and tax documents that you provided?

This is the time to get a second set of eyes on everything that you submit so that you don’t risk a second round of frustration.

Being denied a small business loan is a reality that many business owners face, particularly after their first application – but it is by no means the end of your business financing journey.

Allow yourself to overcome your frustration; then follow these steps to dig right back in, solve what problems you can and find the funding your business needs.

This article was originally posted here on Entrepreneur.com.

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

Cash Flow

How To Avoid The 3 Plagues Of The Financially Disabled

The quickest way to make more money is to better manage the income you already have.

Tucker Ferwerda

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How consistent is your cash flow? Seventy-eight percent of Americans live paycheck to paycheck, and American consumers aren’t the only people affected. Many business owners struggle financially. Twenty percent of businesses go under within their first year of operation. People spend the first 18 years of their lives of schooling and trial-and-error, only to still find themselves in a rut for the rest of their lives – unless they master the art of managing money and cash flow.

Don’t become a part of a measly percentage. Rise to the top, and create something that will last. Create something that is evergreen that will also stand up against the powerful winds of the economic world.

If you’re looking to fight the financial epidemic and become financially free, whether you’re an uprising entrepreneur or a seasoned business owner, here are the three plagues of the financially disabled that you need to avoid at all costs.

1. They allow fear to guide all their decisions

Negative emotions will slow down your progress. Avoid being angry, negative, fearful and doubtful. Remove these feelings and replace them with hope, faith, power and positivity. Your vision, clarity and judgment become cloudy when you hold onto negative emotions. This prevents you from staying productive and leveling yourself up.

It’s not easy and will take some time to replace the negative feelings with positive emotions. Be patient with yourself and become self-aware of your daily thoughts. Are the majority of your thoughts negative or positive? Catch yourself red-handed in the act of thinking negative thoughts and quickly replace them with positive thoughts. Doing this consistently over time will change your habits which will eventually turn you into the money-making machine that you already are.

Related: Outsmart Cash Flow Problems With The Right Financing

2. They avoid learning from others

One of the quickest and easiest ways to fast track your success is to get help. Avoiding coaching and proper mentorship from the right people will keep you riding shotgun in the slow lane. Just like athletes need coaches and training to quickly reach the next level, you need to find the right help from those who are anywhere from two to 10 steps ahead of you. Don’t do any more than this. If you find someone who is too far ahead of you, you risk spending way too much time and money for something that is far out of reach.

You can recognise the pioneer by the arrow in his back. Don’t be a pioneer. There are people who have gone before you who can show you the cliffs and roadblocks to avoid. Here is what you should do instead – pay to play. You can either pay someone by exchanging your time or services for their specific knowledge or by paying cash.

This should be someone that you trust, that has consistent results and is doing what you want to do. Follow them for at least two to three months on social media to find out if they are real.

3. They spend more money than apply action

Does this sound familiar? You spend thousands of dollars on different products, services and events only to find yourself still in the same place? You become motivated for a short time only to become extremely frustrated that you’re not going anywhere. Stop doing this. Please refrain from buying too many things all at once. What you need to do instead is follow a 3-step method – scan, soak and apply.

First, scan what you need to learn. Just like I teach my students, learn what you’re trying to learn as fast as possible without trying to understand everything. Next, you need to soak it in. Learn what you need to learn for understanding and context. You will notice that you are understanding more, and you’ll catch things that you missed on the first scan of the information. Since you’re understanding more, now is the time to apply what you’re learning. Take time, be patient and apply the steps you’re learning. Do this repeatedly until you’re consistently taking action on what you learned.

By avoiding these three plagues, you’ll instantly start to notice yourself getting more done with the time that you have. This will help you stay on track to becoming financially free and living the lifestyle you want. The best time to start was yesterday. The second best time to start is now.

Related: 6 Things You Need To Know About Profit And Cashflow

Do your future self a favour. Pick one of the easier steps above and start working on it. After you feel comfortable with a step, pick the next best. Then complete the last step, and you’ll start to see the cash flow coming in easier and more consistently.

This article was originally posted here on Entrepreneur.com.

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Cash Flow

The Future Of Finance: Are Universities Prepared?

Producing graduates for the world of finance is an expensive, specialised and time-consuming business. Can universities keep pace with the requirements of a rapidly changing industry?

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Financial services needs a highly-skilled workforce and higher education institutions are struggling to keep up, especially as persistent technological progress disrupts financial institutions and the markets and societies in which they operate.

At the heart of the problem lies a traditional university system that can only produce a relatively small number of graduates for the sector through programmes that may take three to four years to complete. To compound this, universities are expensive and highly selective, which effectively bars many from getting the training they need.

Professor David Taylor, Director of the African Institute of Financial Markets and Risk Management (AIFMRM) at UCT, is considering the long-term. He doubts that the current structure and cost of a traditional postgraduate degree is either effective or sustainable.

AIFMRM is one of the country’s pre-eminent postgraduate training facilities offering three specialised Master’s degrees that produce roughly 60 highly-skilled graduates for the financial services sector each year. The Institute’s MPhil specialising in Mathematical Finance was recently ranked 59th worldwide, and Taylor says that AIFMRM works closely with industry to ensure that the graduates they are delivering are aligned with industry needs.

“We know that AIFMRM’s offering is excellent for current financial industry needs,” he says, “but as a forward-thinking institution, we need to be contesting the status quo too. Perhaps it is time for industry and educators to assess what will be needed in the future and to find a model that will be affordable, accessible, efficient and sustainable.”

 Is a traditional degree sufficient for an exponential world?

Akin to Taylor, Colin Iles, consultant and CxO of the Absa Equinox Leadership Centre, believes the traditional degree system may be too slow to respond to changes in any industry. “Educational content has to be curated in a safe and structured way, with approved credits and standardisation – it is a slow system, and there is a danger of taught-content falling behind what is relevant,” he says.

Iles suggests that some of today’s necessary skills have already deviated from those acquired in a traditional degree programme. He says, “The FinTech movement has given rise to thousands of small entrepreneurial companies trying to solve various problems in unique and differentiated ways. Instead of a comprehensive degree that tries to cover every economic model and mathematical proof, you may become more relevant, quicker, by focusing on what you need to learn for that particular space and time. Then apply your knowledge and learn faster by actually building something in an entrepreneurial environment.”

Iles believes the way forward involves re-defining the purpose of the modern university. “If its purpose is to prepare people to be valuable citizens in the global economy, then the traditional university model, which has been in place for hundreds of years, may be outdated for a world that is exponential.”

He adds that universities could offer more customised, shorter sets of focussed learnings, at scale, online. “Even in complex topics, online learning is proving to be highly effective, with rapid feedback, self-paced learning and class interaction.”

Online education is a rapidly growing field. Class Central, which curates a catalogue of Massive Open Online Courses (MOOCs) recently reported there are currently 11 400 MOOCs provided by over 900 universities, catering to 101 million students worldwide. Business and technology comprise almost 40% of the available courses. There has also been a concurrent increase in online degrees.

Blended and flexible offerings may be the solution

CEO of edX, Anant Agarwal, believes that future-proofing higher education starts with re-inventing the degree. In a recent Quartz series on the future of college, he predicted that employers will soon be searching for what diverse skills people have rather than what degree they possess. So, programmes need to become more flexible.

Agarwal imagines a future where students could, for example, combine humanities skills with tech skills, or analytical skills with design skills – building a degree for a customised skill-set. Smaller, modular credits could combine into a degree from a variety of universities.

“This will be good for higher education institutions. A college or online platform could specialise in certain subjects and offer the components of education their instructors truly excel in. When each university can focus on what it does best, both the educators and the educated will benefit,” says Agarwal.

He also notes that students pursuing on-campus degrees will benefit from this model as they will be able to augment their education with specialised, online modular content from other institutions.

Kumeshnee West, Director of Executive Education at UCT’s Graduate School of Business, agrees that technology can augment face-to-face learning – but not replace it. She advocates a balance of online and classroom learning – especially when it comes to the development of soft skills and emotional intelligence, which are key strengths needed in the workplace of the future according to the WEF Future of Jobs Report 2018. 

The rise of life-long learning

Gert Kruger, Chief Risk Officer at Rand Merchant Bank, believes that institutions such as AIFMRM that provide multi-skilled graduates from a variety of academic backgrounds are the first step in keeping pace with what industry needs.

“Also, we need to teach people how to think and how to learn new skills all the time. Possibly teaching more of the soft skills – collaboration, creativity, flexibility and adaptability – may make people adaptable enough to continue learning and re-learning. Organisations need to re-skill people with higher frequency than in the past. Importantly, life-long learning needs to be organisation-wide.”

He adds that the financial industry is continually evolving, but it is challenging to anticipate how organisations – and the skills they require – need to change. However, one thing is clear – “if we do not evolve, we will stagnate. Organisations need to keep abreast of change by making ongoing incremental refinements.”

This is true for universities as well, says Professor Taylor. “Universities are well placed to use their resources and deep expertise to build on what they have, to remain relevant in the future.”

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Cash Flow

Benefits Of Automated Cash Management

Every entrepreneur knows that cash is the lifeblood of a business, but few realise that the way one manages cash, can be the difference between success and failure.

Cash Connect

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Automated cash management has become a vital component of every cash-centric business, particularly in the retail trade. As much as the use of credit cards and online banking is encouraged, consumers remain sceptical and nervous of internet fraud and cybercrime and continue to prefer hard cash as the primary means of transacting.

The days of physical cash are not numbered. Current cash in circulation is approximately R140 billion, having grown from R119 billion in 2014, according to the South African Reserve Bank and according to a recent banking report, cash represents close on 90% of all transactions in South Africa.

If you run a business, some of this cash will find its way into your cash register (or, heaven forbid, the envelope you hide in the fridge until you make the trip to the bank). As a business owner, it is your responsibility to keep your cash safe, not just in the interests of profitability, but in the interests of the welfare of staff and customers who could be caught in the cross fire of armed robbers who almost always, get to know what you have been up to!

According to Richard Phillips, joint CEO of Cash Connect Management Solutions, cash automation is the way to go. “Automated cash handling saves money and time, allowing retailers to focus on their core business and greatly improves their risk profile,” he says. And don’t think your enterprise is too small to automate, as cash, whether small or large in volume, remains high on the criminal agenda.

But the real commercial advantages of cash automation are often hidden by safety and security considerations. The advantages of an automated cash handling solution are and should, do much more than giving your cash a safe ride to the bank. Just have a look at what the Cash Connect solution, arguably the most advanced of its kind in the local market could do for you:

1. Increased business efficiency

Bill Gates once said that automation applied to an efficient operation will magnify the efficiency. It is certainly true for automated cash management. It’s fast, accurate and error free. It eliminates all staff touch points associated with manual reconciliations and banking, which gets rid of shrinkage and double count supervision. It lowers insurance and other overhead and back-office costs, along with your exposure to crime, both in store and en-route to the bank.

2. Improved cash flow

With the right solution, your cash will reflect in your bank account on the same day that the cash-in-transit company collects from your premises. Cash Connect goes even further with its Instant Access feature, which allows access to the cash while still in the vault, converting the retailers’  cash into value whenever they need it.

3. Business continuity

Cash Connect guarantees the cash from the time it is deposited into the cash vault, whilst in transit and until the cash reflects in your bank account. This means that from a cash flow point of view, your business can not only survive most crises, but that business continuity is guaranteed.

4. Cost savings

In a manual cash handling environment, the combination of all the elements required to give effect to realising value in one’s bank account will vary with the actual monthly cash turnover; But on R1,5 million of cash receipts a month, the cost will be somewhere in the region of 135 basis points.

A corresponding integrated automated cash management service will cost in the region of 70 basis points.

As a matter of interest, card transactions cost the retailer anything between 300 and 500 basis points – reinforcing why, for the retailer, cash is the preferred medium of payment.

5. Access to alternative funding options

Imagine applying for a business loan, getting funding approval in one hour and having R1,8 million paid into your bank account within 24 hours. Far from a pipedream, this is what Cash Connect recently did for one of its retail supermarket clients under its Cash Connect Capital offering. You too can get fast, flexible, hassle-free, and unsecured growth finance when you need working capital to boost your business.

Having grown Cash Connect from an entrepreneur’s start-up to the success it is today, the Cash Connect team remains driven by the desire to empower and enable South Africa’s SME community and retail sector, by creating a trading environment that takes businesses from a place of safety to a place of growth.

And in today’s modern world, that is exactly how entrepreneurs should think about cash management solutions and how they can improve business efficiency and cash flow.

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