What to Do if You’re Turned Down for a Small Business Credit Card
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This article was last updated Sep 03, 2019. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.
Your business is up and running. You’re proud of your brand and your product. Then, you get a denial on the small business credit card you’d hoped would help your business move forward. Don’t panic — you can take steps to understand what happened and resolve the issue.
In this article:
Figure out why you were denied
Your personal credit history will be checked when you apply for a business credit card, so this is a good place to start. If your personal FICO Score is below 700, you’ll have fewer options for cards and your chances of approval will be slimmer than for someone with a 700+ score.
“[There] could be a lot of different reasons for denial,” said Elaine Pofeldt, a personal finance expert and author of the book “The Million-Dollar, One-Person Business.” You could be carrying too much debt, your credit score isn’t high enough or your income isn’t sufficient.
If rejected, the issuer will mail you an adverse action letter, detailing the reasons why your application was not approved. Another possible reason for rejection? You don’t have much credit history, or perhaps don’t have any.
“They have nothing to go on,” Pofeldt said, if you can’t prove that you’ve handled credit responsibly in the past.
“Credit card companies will provide a rationale for why they turn down an application, which is helpful for business owners to try to avoid being declined in the future,” said Khary Scott, vice president of business development for Capital One Small Business Card.
We’ll go into some detail on some possible reasons you might have been denied:
Limited or no credit history
When you get a small business card, you’re personally guaranteeing that card. That means you, the business owner, are responsible for paying off what gets charged to the card. Even though most business cards (Capital One and Discover are exceptions) don’t report to the consumer credit bureaus (unless, of course, you fall behind on payments), your personal credit is still considered when you apply for a business card.
So, if you have a limited or no personal credit history, you will need to build that up before applying for a business card. Check out our list of credit cards for beginners as a starting point to build personal credit.
Bad credit history
If you have a negative credit history, such as a pattern of late payments on credit cards or other bills or if you defaulted on a debt, you’ll need to give yourself some time to rebuild your credit before you have a chance at getting approved for the card you want.
Too many inquiries
Don’t apply for too many credit cards at once. Those applications show up on your credit report as hard inquiries, and too many of them can make it look like you’re desperate for credit.
If you get rejected, and can’t persuade the issuer to reconsider, wait at least six months before applying for another card. This will give you an opportunity to get on stronger financial footing.
Applying for too many cards is also a way to run afoul of bank rules aimed at stopping “churning” — the practice of applying for multiple credit cards just to get the sign-up bonus. For example, Chase uses an unwritten “5/24 rule” where you probably won’t get approved for a card with Chase if you’ve been approved for five credit cards with any bank within the past 24 months.
Lack of income
If it doesn’t look like you are bringing in enough revenue to pay back what you could charge to a credit card, that can also harm your chances for approval. If you were rejected and your business revenue is strong, you could try contacting the card issuer to ask for reconsideration by providing financial records to back up your case. If your business is new and you don’t have sufficient demonstrated income yet, you might need to consider options other than a regular, unsecured business card until your revenue increases.
Work to fix the problem
Check your credit reports and score
There are three major credit bureaus that furnish personal credit reports — Equifax, Experian and TransUnion. You’re entitled under federal law to a free report from each bureau every year. To request your report online, go to AnnualCreditReport.com. Go over your credit reports to check for legitimate errors, such as accounts you didn’t open or debts that aren’t yours that you can then dispute and have removed.
You’ll also want to check your credit score. You might be able to access your free FICO Score if you have a personal credit card that provides that service. For example, some Citibank cards offer this, and Discover offers a free Credit Scorecard service to cardholders and non-cardholders alike.
Establish or rebuild your credit
If you have limited or no personal credit history, you want to start building it, ideally before you even apply for a small business card. One way to do this is with a secured personal card — which functions just like a normal, unsecured credit card, but requires a security deposit. Typically, the amount of the deposit becomes your credit limit, so secured cards often have low limits of several hundred dollars.
You still have to make payments on what you charge to the card; the deposit doesn’t cover those. The deposit gives the card issuer security in case a cardholder doesn’t pay their debt.
Here’s a list of secured credit cards worth considering.
Once approved for a secured card, make sure your payments are on time every time.
And if you’re carrying a high balance on existing personal or business cards, pay it down — the lower your credit utilization, the better your credit score.
Look at ways to improve your cash flow
If your business is having trouble with cash flow, there are things you can do to improve it. For example, make a point to send out invoices as quickly as possible, Pofeldt suggested. And if there are recurring expenses you can cut or reduce — for example, software subscriptions — trim them.
Ask for reconsideration
If your credit is fairly solid and you’re rejected for a small business card you really want, it won’t hurt to call the card issuer to ask for reconsideration — known in the credit card world as “recon.” Be prepared to demonstrate that your business is in a strong financial situation and that you’re not a risk. There’s no guarantee you’ll get approved, but you might get an opportunity to plead your case better than the initial application allowed.
Consider alternative options
Get a secured business card
Though they get more attention for rebuilding personal credit, a secured card can be an option for your business as well. The Wells Fargo Business Secured Credit Card charges an annual fee of $25 per card and offers a credit limit ranging from $500 to $25,000, depending on how much you deposit. If approved, Wells Fargo will periodically review your account and recent credit history to see if you qualify for an upgrade to an unsecured business credit card.
Consider a no-bank business loan
If you can’t get a business credit card or a traditional business loan, you might have more luck with alternative lenders. Nonbank institutions generally can’t offer the full range of financial products that banks can, and their loans might have higher interest rates or shorter terms than what you’d find at a bank — but they are often willing to consider applicants who have difficulty getting a traditional bank loan. As of the date of publishing, here are a few options worth looking at:
- Expansion Capital offers various small business loan products in amounts ranging from $5,000 to $300,000. The length of a loan ranges from four to 12 months.
- National Funding offers small business loans and equipment financing and leasing. Small business loans can range from $5,000 to $500,000.
- OnDeck Capital offers products including business loans, lines of credit and equipment financing. Its short-term loans range from three to 12 months, and its long-term loans range from 15 to 36 months. Loans can range from $5,000 to $500,000.
It’s important to make sure you’re dealing with a legitimate institution if you go with an alternative lender, so do some research before signing up with one.
See if the SBA can help
The U.S. Small Business Administration has a webpage dedicated to helping business owners get more funding for their businesses. Among the resources available is Lender Match — a free online referral tool that connects small businesses with participating SBA-approved lenders. Even when a bank may consider your business too much of a risk for a regular business loan, you might be able to qualify for an SBA-guaranteed loan.
In addition, the SBA can help you find free business counseling from partner organizations. If you need assistance figuring out how to improve your business’s financial situation — which might allow you to you have an easier time getting a traditional loan or a small business credit card down the road — this can help you.
The bottom line
If you are denied for a business card, step back for a moment and figure out why. Carefully review your credit score and reports. Read the adverse action letter sent to you from the issuer to evaluate the reasons for the rejection.
Once you can establish how to improve your chances of approval next time you apply, take steps to correct them. For instance, if your balances on your personal cards are too high, make it a point to pay them down.
If you have a limited credit history, consider alternative options, such as a secured business card, a loan from a nonbank lender, or going to the SBA to find resources like financial counseling and SBA-guaranteed loans. These resources can help you get your business on a better financial footing, at which point you’re more likely to succeed when trying to get a business card.
This article originally appeared on CompareCards, a media brand owned by LendingTree.