The short answer
Do not rush straight into another application. Find out why you were declined, check your credit report, fix what you can, and then apply to a lender whose criteria actually fit your situation. A decline from one lender is a judgement against that lender's rules, not a final verdict on you or your business.
1. Ask the lender why
Lenders do not always volunteer the reason, but many will tell you if you ask. The answer usually falls into one of a few groups:
- Affordability. Your income or the business's cash flow did not cover the repayments on the lender's numbers.
- Credit history. A default, missed payments, a judgment or a lot of recent credit enquiries.
- Security. Not enough equity, or property the lender does not like to lend against.
- Documents. Accounts or tax returns that are out of date, or income the lender could not verify.
- Policy. The purpose, the industry, the loan size or the length of time in business fell outside the lender's rules.
Write the reason down. It tells you whether to fix something, wait, or go to a different kind of lender.
2. Check your credit report, free
New Zealand has three credit reporting agencies: Centrix, Equifax and Experian. Each will give you a free copy of your credit report, and you can pay to get it faster. Lenders may use any of them, so it is worth checking more than one.
Look for accounts you do not recognise, missed payments or defaults you did not know about, and credit enquiries you never approved. If something is wrong, contact the agency or the organisation that reported it and ask for it to be corrected. A single wrong default can be the difference between a yes and a no.
3. Stop applying everywhere
Each application usually involves a credit check, and each check can show on your credit file as an enquiry. Several enquiries in a short time can make the next lender nervous, even if every one was a reasonable request. Choose your next lender carefully rather than applying to several at once.
4. Fix what you can
- Bring your paperwork up to date. File overdue tax returns and finish your annual accounts.
- Deal with arrears. If you owe Inland Revenue, talk to it about an instalment arrangement. Agreed regular payments mean fewer penalties.
- Reduce other debt. Closing unused credit cards or clearing a small loan can help affordability.
- Explain one-off events. A bad year caused by illness, a lost contract or a natural disaster reads differently when it is explained upfront.
- Get advice. An accountant can tell you whether the numbers support more borrowing. For a home loan, a mortgage adviser knows which lenders suit which situations.
5. Choose the right kind of lender
Different lenders look at different things. Banks follow strict policies and want strong, recent financials. Online cash flow lenders mostly read your bank statements. Non-bank and private lenders often lend against property and look harder at the security and the plan to repay.
That means a decline from one type of lender says little about how another will see you. If a bank said no because your accounts are a year behind, for example, a property-secured lender may still be able to help with a business need while you catch up.
If it is a business loan
Business owners are declined for reasons that have nothing to do with whether the business is sound: a short trading history, a recent loss, IRD arrears, or a deadline the bank's process cannot meet. Online unsecured lenders may decline because of a quiet month, failed direct debits or existing loans with daily or weekly repayments.
HomeSec is a direct, privately funded New Zealand lender. We lend $20,000 to $1,000,000 for genuine business purposes, secured by a first or second mortgage over suitable residential or commercial property, and we assess the purpose, the security and how the loan will be repaid. Our guide for owners who have been declined for a business loan sets out the options in more detail, and our page on bad credit and tax debt business loans explains how we look at credit issues.
We do not lend for home loans or personal loans. If your home loan was declined, a mortgage adviser is the best next step.
No valuations or cashflow records are needed to start an enquiry. Funding may be possible in as little as 24 hours, subject to approval, documents, security, legal work and settlement requirements. Approval is never guaranteed.
Common questions
How long should I wait before applying again?
There is no fixed rule. Wait until you have fixed the reason for the decline, or until you have found a lender whose criteria fit. Reapplying to the same lender with nothing changed usually gets the same answer.
Does a declined loan go on my credit file?
The credit check the lender ran can appear as an enquiry. Check your report with Centrix, Equifax and Experian to see exactly what is recorded about you.
Can I get a loan if my bank has declined me?
Often, yes. Non-bank lenders, credit unions and private lenders assess differently. Compare the total cost carefully, because more flexible lenders usually charge more.
Can I get a business loan with bad credit?
It is possible with a property-secured lender, especially when the purpose is clear and there is a realistic plan to repay. Be upfront about any defaults or tax debt.