Reasons Why Your Business Loan Application could be Rejected

Jun 4, 2021 7 min read

Reasons Why Your Business Loan Application could be Rejected

Starting a business and running it smoothly needs a sufficient amount of capital so that you can make your payments and purchases timely. Not necessarily there are always adequate funds available with you. That is the time when you need to take a business loan.

What is a business loan?

An Instant Business loan is a loan which is given specifically for the purpose of giving financial assistance to the borrower. These loans help to fund the business to meet the daily requirements. Business loans have become a necessity in the modern times especially when you are facing any cash crunch or you want to expand your business. Banks and Non-Banking Financial Companies offer business loans to start-ups, MSMEs, entities and even individuals with small businesses.

Secured and unsecured business loans

Getting a business loan is easier if you own any property like a shop, house, go down or an office. Interest rates are comparatively lower if you take a secured loan. It becomes less risky for banks or the financial companies if you provide any of your assets as collateral. As loan amount can be recovered through that asset in case you are unable to repay the loan amount for any reason.

On the other hand if you are getting an unsecured loan, interest rates will be higher. Most of the banks and NBFCs don’t demand any collateral to approve unsecured business loans but your credit score, credit history and many other things are taken into consideration.

Why could your business loan application be rejected?

There are many people who hesitate to apply for a business loan with the fear it could get rejected. Instead of being hesitant it’s better to have knowledge of the reasons why a business loan can get rejected. Here are some of the most common reasons for rejection:

Low credit score

If you have a low credit score, it also affects your eligibility for attaining a business loan because it gives the impression that when you can’t manage your personal credit, how good will you be while paying back your business loans. The best way is to take rectifying measures to improve your credit score. A good credit score shows that you have good budget making skills and effective expense management.

New in business

If you are new in business then you lack the credit history of your business. The solution is you should ask your suppliers and vendors to report your payments so that a good credit history could be built up. On the other hand, there are some lenders who provide loans even to the new businesses.

Lack or not enough collateral

Some lenders provide the business loans against collateral. If you don’t have collateral or it is not just enough, the lender can reject your loan application. But the good thing is there are many NBFCs who provide you a loan without collateral. So, explore your options or you can go straight away with Zavron Finserv.

Too high or too low debt utilization

If you have already used most of your credit limit, in that case also your business loan application can get rejected. The same will happen if you don’t have debts at all. So maintain a reasonable debt usage including your personal and business credit cards etc.

Not enough cash flow

If your business suffers with shortage of cash quite frequently that can also be an obstruction in your loan approval. You can use accounting software to generate your cash flow reports and projections. You can monitor your cash flow on regular intervals and keep it in good shape.

A risky business plan

Traditional lenders consider some of the industries too risky and they just refuse to give you a loan for that. In such a case you must explore your options and find out the lenders who specialize in that particular industry.

Unclear purpose of the loan

When you apply for a business loan, you must clearly mention the purpose for which you want to acquire the loan. If it is not clearly mentioned, your application for a business loan can be rejected.

Incomplete paperwork or application

The most common reason behind the rejection of a loan application is either you have not filled the application form completely or you have not submitted the required documents. If you don’t want to spend long hours filling the application form and completing the required paperwork, just opt for Zavron Finserv and open yourself for a hassle-free and stress-free business loan.

When you apply for a business loan, you should be at least 24 years old and make sure to attach the following documents:

●    KYC documents (Aadhaar Card, PAN Card, etc.)

●    Income Tax Returns of last 3 years

●    Bank Statement of 12 months

●    Trade License

●    Cash Flow Statement

Loan amount asked for is not enough

Usually, big banks don’t approve smaller amounts of loans. So, either you can apply for a larger amount or you can search for an alternative financier which can approve an even smaller amount.

Now, you know the reasons behind the rejection of the business loan application. So, before applying take all these points in consideration, opt for a good lender and do your business without any money crunch.

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