What to Do If Your Business Loan Gets Denied - Alternative Financing Options

Starting or expanding a business is never easy. One of the biggest hurdles is securing the right funding to fuel your growth. It can be disheartening when your bank loan application gets denied. After all the effort spent preparing documents, perfecting your business plan, and envisioning how the funds would transform your operations — receiving a denial can feel like a step back.

However, rest assured that you’re not alone. Many SME owners in Malaysia face the same challenge. The good news? A rejected bank loan isn’t the end of the road. In fact, plenty of alternative financing options can still help you move forward.

Let’s examine why business loans get denied and, more importantly, what alternative financing options are available in Malaysia.

Why Your Business Loan Gets Denied

Understanding the reasons behind a loan rejection can help you avoid the same pitfalls next time or help you choose a better-suited financing option. Here are some common reasons banks say no:

1. Poor credit history

Banks assess risk by looking at your credit score. Late payments, defaults, or having too many loans could lower your chances of approval. In other words, a poor credit history can make lenders hesitant to trust you with more money.

2. Insufficient cash flow

Lenders want to be sure you can repay the loan. If your business isn’t generating enough income to cover existing expenses (plus the new loan repayments), that’s a red flag.

3. Lack of collateral

Traditional banks often require collateral, such as property, inventory, or other assets, to secure the loan. They might decline your application if you don’t have enough assets to pledge.

4. Incomplete documentation

Sometimes, your application may be rejected because it’s missing key documents, like a proper business plan, audited financial statements, or income projections. Banks need this information to evaluate your business health.

5. Short business track record

Businesses younger than one or two years are considered riskier by banks. They prefer businesses with proven stability and a track record of consistent revenue.

6. High debt-to-income ratio

Already have existing loans or liabilities? If your business already carries a heavy debt burden, lenders might worry you’re over-leveraged.

Alternative Business Loans with Low Interest Rate

Now that we understand the common obstacles, let’s explore the many other alternative financing options and how it can help you!

1. Digital financing platform

Digital financing has changed the game for many business owners. One standout platform is Funding Societies, which offers flexible, fast, and accessible financing solutions. Here are some of their products tailored for SMEs:

SME Micro Financing

SME Micro Financing is perfect for small businesses that need a quick boost of up to RM20,000, plus you don’t need to offer collateral since it’s a fast unsecured business loan. The application process is 100% online, and funds can be disbursed quickly, often within five working days. Furthermore, according to your business needs, you can choose the best repayment tenure of up to 18 months.

As a result, you can save time, avoid lengthy paperwork, and get funding based on your business potential, not just your credit score.

Business Term Financing

If you need a more structured loan with a higher limit, Business Term Financing is a solid choice. You can get a quick capital injection of up to RM500,000 and enjoy flexible repayment tenures. It’s ideal for planned expansions, equipment purchases, or hiring staff. Requirements include at least 6 months of operation, 30% Malaysian ownership, and RM5,000 in monthly revenue.

Invoice financing

Some of your customers pay late? With invoice financing, you can unlock the value of unpaid invoices. Funding Societies will allow you to convert your outstanding purchase orders into immediate cash of up to RM1 million, and you can choose up to 120 days of repayment tenure. That means you can get paid sooner to cover your daily business expenses!

Property-Backed Secured Financing

If you own a property, this financing option allows you to borrow larger amounts (up to RM2 million) at competitive interest rates as low as 8% p.a. You’ll get up to 60% of your property value, making it ideal for significant investments like opening a new store!

Note that Funding Societies’ Property-Backed Secured Financing is only available to businesses that have been operating for at least one year and generate an annual revenue of RM1 million or more.

Dealer Financing

Ideal for used car dealerships. You can optimise your business cash flow by getting a facility limit of up to RM500,000, which you can use immediately for all your dealership needs. Furthermore, you can get financing for up to 85% of your car’s value. Therefore, it will help you manage supply and demand without straining your cash reserves.

2. Merchant Cash Advances

Merchant Cash Advances are not traditional loans. Instead, you get an advance based on future sales, usually from your credit or debit card transactions. Repayment is based on a percentage of your daily sales — so you pay more when business is strong and less when it’s slow. That’s why it’s an excellent choice for retail and F&B establishments with steady card transactions. You can get this financing facility from Grab, UOB, CIMB, and Stripe.

3. Crowdfunding and angel investors

If traditional funding isn’t working out, fret not, because crowdfunding platforms and angel investors are some other alternatives that you can consider. With crowdfunding, you can raise money by offering a small stake in your company to a pool of investors, via platforms such as pitchIN, Ata Plus, and Crowdo.

On the other hand, angel investors are high-net-worth individuals who invest in promising startups and SMEs, usually in exchange for equity. So, aside from funding, you also gain mentorship, guidance, and industry connections. You can look into MBAN (Malaysian Business Angel Network) and Cradle Fund’s angel investing programmes for opportunities.

4. Government grants

Malaysia has a strong support ecosystem for SMEs, and several grants and schemes are available, especially for startups and growing businesses. Some examples include TEKUN Nasional (micro-loans for Bumiputera entrepreneurs), Malaysia Digital Economy Corporation (MDEC)’s digitalisation grant, and many more. They offer low interest rates, guidance programs, and flexible repayment schemes.

How to Get a Business Loan with No Credit

If you’re ready to fund your business idea but worried about getting rejected, here are some simple tips to help you prepare and increase your chances of getting approved for alternative business financing, even without credit.

1. Evaluate your needs

Before you apply for any loan, take some time to understand exactly how much you need and what you’ll use the money for. Are you planning to buy new stock? Upgrade equipment? Cover daily expenses? Knowing this helps you apply for the right loan type and shows the lender you’ve thought things through.

It’s better to ask for what you truly need, not too much or too little. If your request has a clear purpose, lenders will feel more confident.

2. Provide a solid business plan

Even if you don’t have credit, a strong business plan can help balance things out because a clear, well-written plan shows lenders that you’re serious, focused, and prepared. In other words, it’s your chance to show how your business will make money, how it’s different from competitors, and what you plan to do with the loan.

Your plan doesn’t have to be complicated. Just include a brief overview of your business, details on the target market and customer base, revenue projections, marketing and sales plans, and an explanation of how the loan will support growth.

3. Strengthen cash flow records

Lenders want to know if you can repay the loan. If your credit score doesn’t say much, your cash flow might. Keep clear records of your income and expenses, especially if your business is already running. If you can show regular earnings, even modest ones, this can give lenders more confidence. Consider using simple accounting software or spreadsheets to keep everything in order.

4. Learn the application requirements

Every lender is different. Some ask for collateral, some don’t. Some accept startups, others prefer businesses with at least 6 months of operations. That’s why it’s essential to research the requirements before applying.

5. Prepare the necessary documents

Even alternative lenders still need certain documents to process your application. These usually include business registration forms (SSM documents) and bank statements (usually 6 months), proof of business income (sales records and invoices), and a business plan (especially if you’re just starting). Prepare everything in advance so your application doesn’t get delayed or rejected.

6. Follow the outlined procedures

Lastly, follow the outlined steps carefully once you’ve chosen a lender and gathered your documents. Fill out all forms correctly, double-check your uploads, and quickly respond if they ask for more info.

Having your business loan denied or no credit history shouldn’t stop you from chasing your business dreams. The key is to plan, stay organised, and choose the financing solution that best fits your business, which includes a business loan with a low interest rate.

For instance, Funding Societies offers a range of SME financing options designed for Malaysian business owners, including micro financing and invoice financing, perfect for those without strong credit backgrounds. Explore your options here, and make your dream business idea come true!