What To Do When Banks Refuse To Lend Money To Startups

If you run a small business or a startup, getting funds from the major banks in Australia can be challenging. In fact, most of the time, banks will refuse to finance your venture. This can be difficult for many businesses at the early stage.

Now banks play a significant role in the lending landscape. However, they are no longer the only source. In recent times, there has been a lot of new financial openings for businesses. The COVID-19 pandemic further escalated the situation, opening new avenues.

Options like alternative lending in Australia have been a blessing for small and medium-sized enterprises. If banks have rejected your loan application, you might want to consider this option.

Why Do Banks Refuse to Give You a Loan?

Let’s first understand why and when banks can refuse your loan approval. There are various reasons for this.

Insufficient Credit Record

Banks track your credit history when reviewing your loan application. Therefore, having a good credit score can boost your chances of getting approval. Startups, however, do not have a credit history in the developmental stages.

Not having a credit score at all can jeopardise your loan application just as much as bad credit history.

Weak Loan Applications

Most startups fail to realise that a loan application is not just limited to filling out a form. You also need to provide a sound business plan. Your financial statement should be a clear projection of that.

Moreover, banks will thoroughly inspect your tax returns and bank statements along with your credit report. Documents like contracts, permits, leases, and state licenses can also make your case stronger.

Lack of Sufficient Cash Flows

Banks need to confirm if you will pay off the monthly interest before approving the loan. They will also check the debt-to-income ratio to analyse if you can keep paying the interest while keeping up with your regular expenses. These include rents, payroll, and any overhead costs.

Scope for Profit Making Is Less

Startups usually seek smaller loan amounts due to a strict budget. Banks cannot make much profit from these. This is also a primary reason for banks being reluctant to grant a loan to small businesses.

Underwriting any loan can cost the same for banks. So, when they grant smaller loans, they cost the bank more compared to the bigger loans.

How Alternative Lending Can Be the Right Solution

The market for alternative lending in Australia is relatively new but has quickly gained a lot of importance. The alternative lending market is expected to reach US$572.3m. So, what is the reason behind its growing success?


Alternative lenders usually offer unsecured loans to businesses through a simple procedure. It involves very little paperwork and filling an online application.

Quick Processing

The chance of getting your loans approved quickly is the primary reason behind the popularity of alternative lending in Australia. You can even expect the funds to come in a couple of days once your application is approved.

Higher Chance of Getting Approval

Alternative lenders do not just approve your application faster. There is a higher chance of getting approval too. In fact, more often than not, they approve loans that traditional financial institutions have rejected.

Offers More Flexibility

Furthermore, there is more flexibility in the repayment terms, depending on how the business functions. You can repay via weekly payments or adjust to seasonal payments.


Getting finances for your startup in the initial days can be difficult. However, there is no need to worry even if the major banks refuse your loan application. The alternative lending process can make financing more manageable.

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