Know Your Rights When Applying for Business Credit

If you are seeking a loan to start a new business, or expand your existing business, here are a few tips:

The Equal Credit Opportunity Act (ECOA) is a law that prohibits any discriminatory lending decisions based on race, religion, sex, age, national origin, marital status or handicap.  The Fair Credit Reporting Act can also work to your advantage.  If you feel that you are denied credit based on any of the ECOA rules, or possible errors on your credit report, you have recourse.  For all details, see our Reference Library articles on these two laws.

If a lender rejects your application for business credit, you have the right to send a written letter requesting the specific reaon for denial within 30 after your application has been rejected. The lender has 30 days within which to reply, providing you the precise reason.  If, upon receiving the lender's reason, you believe your rights have been violated under any laws, you may seek recourse.

For small businesses, with gross annual revenues of under one million dollars, the lender must keep your credit application for one year after rejection.  For larger businesses, the lender must keep your application for 60 days after rejection.  This allows you the time to protect your rights, if you feel they are violated, and petition reconsideration.  

If you formally request it in writing, you may ask the lender to keep the application open for a longer period of time.  This is usually done if you plan to take legal action against the lender.  Disputes about credit denial may be assisted by the Federal Trade Commission with a governmental lender, public utility company, small loan and finance company, travel and expense credit card company or other non-bank lender.