At a recent event, a business owner asked a question that stopped the conversation.
Her business had room to grow, but its financials were not where the bank wanted them to be. She could not get a loan.
What options did she have?
The room went quiet.
I suggested she consider private credit—financing from investors or other nonbank sources. Depending on the business and the terms, that might take the form of a loan or a revenue-based arrangement.
That was a starting point for a conversation. I hadn't reviewed her financial statements, so I couldn't tell her whether a particular financing structure would work.
But her question raises an issue many business owners face: Does a bank rejection mean the business cannot finance its growth?
The answer begins with understanding why the bank declined.
Start with the reason for the rejection
“The financials are not strong enough” can describe several different problems.
A business might have inconsistent earnings, weak cash flow, too much existing debt, or records that do not clearly explain its performance. It might also be seeking financing that does not fit the lender’s requirements.
Those situations call for different responses.
Before approaching another funding source, I would ask the owner to get as specific as possible about the bank’s concerns.
What would need to change for the application to become acceptable? Better documentation? More operating history? Less debt? Stronger cash flow?
The next step might be a different lender. It might also mean fixing a problem another lender will notice.
Explain exactly what the money will accomplish
“I need money to grow” is too broad to evaluate.
A useful financing request connects the money to a specific activity:
Buying equipment needed to fulfill existing demand.
Purchasing inventory for a defined sales opportunity.
Funding the gap between completing work and collecting payment.
Adding capacity after identifying the costs and expected return.
Then comes the harder question: What happens if the growth takes longer than expected?
A financing plan should account for the period before new revenue arrives. The business still has to cover payroll, rent, suppliers, and its existing obligations.
Growth can consume cash before it produces cash.
Private credit deserves consideration—and careful review
I raised private credit because a bank is only one potential source of financing.
An owner considering a private loan should understand the entire obligation:
How much cash does the business actually receive?
What is the total repayment amount?
When do payments begin, and how frequently are they due?
Is there a balloon payment?
What collateral or personal guarantees are required?
What happens if the business misses a payment?
I would also ask whether the repayment schedule matches the activity being financed.
If the business will not collect from a customer for several months, an aggressive payment schedule beginning immediately could create a cash shortage before the opportunity pays off.
Getting approved does not settle whether the financing is workable.
Revenue sharing needs a clear definition
A revenue-share arrangement may be worth discussing when fixed payments don't match the business’s cash flow. But the contract determines how it works.
The owner needs to understand what counts as revenue, how payments are calculated, how long the obligation lasts, and whether there is a repayment cap or minimum payment.
One distinction matters: revenue is not profit.
A business can increase sales while still struggling to cover its expenses. You must evaluate a payment calculated from revenue alongside margins, operating costs, and other obligations.
I would want the owner to model the arrangement under slower sales, expected sales, and stronger sales before agreeing to it.
Sometimes the better answer is a smaller step
Outside financing is not the only question worth examining.
Could the owner pursue part of the opportunity first? Negotiate a customer deposit? Change supplier terms? Delay an expense? Improve collections?
These possibilities depend on the business, but they belong in the discussion.
If a smaller investment can demonstrate demand or improve the financial record, it may put the owner in a stronger position for the next financing conversation.
There are also situations where borrowing should wait. If the business cannot support repayment without everything going right, adding an obligation may make the underlying problem harder to solve.
My answer to the owner
I would still encourage her to explore private credit and consider whether a revenue-based arrangement fits her business.
First, though, I would want to understand the bank’s objection, the proposed use of funds, and the cash available for repayment.
A bank rejection is a reason to investigate. It is not enough information to conclude that the opportunity is unfinanceable—or that another source of money will solve the problem.
The goal is to secure financing the business can use productively and repay under realistic conditions.