When your business needs expansion, you need to buy equipment, or you want funds for any other operations – a business loan will act as a lifeline for your business. But availing a business loan might be tricky when you are a business owner who is applying for it for the first time. Both banks and NBFCs offer customised business loan products will suit your needs and requirements.
Financial providers will look into everything starting from your loan application, eligibility criteria to your business plan to find out your needs. Only when everything satisfies their criteria, they will approve your loan application and process it. Once when the loan is processed, you will get the funds directly to your bank account.
There are times when your business loan application gets rejected. Sometimes we will not be able to figure out the reason for it. But here are the common reasons why your business loan application might get rejected by your financial provider:
Low Credit Score:
Your credit score reflects on your effective repayment capability and trustworthiness to your financial provider. When you have a respectable credit score, your financial provider will feel you be creditworthy and will approve your loan application.
Whereas, when your credit score is bad, that means you haven’t repaid your loan on time or defaulted your loans. These aren’t good signs a financial provider will for when you apply for a loan, so you should always be sure to comprehend your credit score before applying for a business loan. Always make sure to check if there are any mistakes on your credit score and correct it, so your credibility stays on the safer side.
Inadequate Cash Flow:
Your cash flow analysis will make your financial provider understand your repayment capability and also cover the operational charges your business might require. When you have inadequate cash flow, it will look like you aren’t capable of repaying the loan or managing your business is not a good sign.
Improving your cash flow might require you to:
- Cutting out on unnecessary expenses
- Making proper invoices on your business operations
- Always making sure to have an emergency fund
Having Way Too Much Of Debt:
When your business has too much debt, it will turn off your loan application from your financial provider. The financial provider will be concerned about your repayment success when you already have too much debt to handle. So always make sure to have fewer debts and clear off your debts before taking a new one will create a good impression about you to the finance provider.
Your past performance in the business also matters; your financial provider will look into your market experiences and how you have handled your business so far. When your financial provider looks into those details, they will understand whether you have expertise in the field of business or not. Only when they feel you are worth getting the loan the financial provider will sanction the loan for your business. So always ensure that you make your financial provider understand your worth and credibility before you apply for the loan.
Improper Or Unclear Business Plan:
A business plan you are going to submit along with your loan application is something very crucial for your loan approval. The business plan will let your financial provider know about you and how you are planning to repay the loan. Only after conducting an in-depth study on your business plan and your market, your financial provider will accept your loan proposal. You should make sure to create a business plan is unbiased and realistic before applying for a business loan.
Non-Existence Of Collateral:
When you apply for a business loan collateral is something will be very important. Business loans come with large funding transactions so a financial provider will always look for collateral from you before sanctioning the loan. With collateral, your financial provider will feel secured enough to give you the loan.
When you cannot provide them with any tangible assets, you can go for a personal asset for getting the funds you need. With a personal asset, any person can co-sign the loan application with you, are the only criteria. So always try to provide one collateral or the other to make sure your loan gets approved.
Unknowing The Business Loan Purpose:
Sometimes the financial provider will ask questions to you regarding your business plan, and when you cannot answer it, they will feel that you don’t have a purpose for this loan. Not having a proper use or reason for having this loan will lead your loan application to get rejected as your financial provider will not feel you are credible.
Yes! You read it right! Market risks will also be taken into account before approving your loan application. The financial provider will look into your business market and try to understand it better and get an insight on it before providing you with the loan. Only when they feel your market will not get affected very severely sometime in the future, your loan will be approved.
So always make sure to correct all these mistakes before you apply for a business loan. Only when you make sure, you are free from these errors you can get your loan approved quickly. Other than this, there might be many different complex reasons to get your loan application rejected you have to get sorted out with your financial provider for a better understanding.