From the April 2000 issue of Startups

Q: Our sunglasses shop was turned down for an expansion loan. We're angry and don't understand what happened, especially since we have excellent credit.

A: Since your credit record is no problem, take a dual approach. One, get some fresh eyes on the problem. Contact your Small Business Development Center (http://www.sba.gov) and review your package with a loan counselor. And two, examine what went wrong. Stay calm. Don't apply elsewhere. Multiple applications can poison your credit report with multiple turndowns. Instead, call the loan officer and request a meeting. Reassure him or her that you respect the decision, do not expect it to change, and appreciate the time spent on your request. Say nothing that could be interpreted as anger or a threat-even by the most paranoid people.

State that you value the banker's ideas for changes your company should make to qualify for bank credit. Don't let the turndown go unexplained. You must understand why. The banker might resist; in that case, suggest that it can be done over the phone.

Whatever advice you get, don't argue and don't object. Only ask clarifying questions. Uncover the weaknesses the bank saw in either your presentation or in your company. You want this person who said no to tell you what it takes to get a yes. Don't indicate that you might apply again somewhere else. There's nothing shady about this. Lending is not a science. Maybe all you need is a lender who understands your industry. Perhaps you need another type of lender, like a commercial finance company.

Turndowns often prompt a reworking of your business plan. Perhaps you need to manage cash flow and current assets more efficiently or improve profitability before expanding. Banks are not business plan consultants. Maybe all the bank's objections are misunderstandings. Great! Just do your explaining at another bank. This discussion will test your patience but improve your chances of getting a loan. Staying angry and submitting the same losing proposal again is a blind alley.


George M. Dawson (gdawson@txdirect.com ) is a small-business consultant and author of Borrowing to Build Your Business: Getting Your Banker to Say "Yes" (Upstart Publishing, $16.95, 800-235-8866). Send him your financing questions at bsumag@entrepreneur.com.