Finance

5 Reasons Behind Business Loan Rejection

What do banks looks for when applying for a business loan?

A business loan is like a source of survival for startups and small businesses. Moreover, if an online business loan that you apply for gets rejected, then it is really a tricky thing to deal with. In this article, we will discuss the 5 most common reasons behind business loan rejection.

In recent years, the business loan approvals have declined considerably majorly because of its high risk linked to these types of personal business loans. The threat of a loan changing into a “Non-performing asset” has made the loan providers extremely careful and strict towards giving approval for a working capital loan.

Though it’s factual that the banks and other loan providers have become somewhat strict about their terms and conditions of a working capital loan particularly for the MSMEs and startups, using the correct details and credentials there is no need for you to think twice to apply for a business loan in case of need.

Read Also, Mistakes to avoid while taking out debt consolidation loans

Reasons Behind Business Loan Rejection

Mentioned below are a few reasons behind business loan rejection. These causes can act as an obstruction in your business loan approval procedure:

Bad credit history

The banks and financial institutes assess your business credit value together with your CIBIL score while taking the final about your business loan approval. If you hold any downbeat remark on any of your scores (business or personal) then it might get really difficult for you to get your loan request approved.

A good CIBIL score is an essential need for direct loan approval. In case you have a low credit score then either your loan request will get rejected or you might have to wind up shelling out the higher interest rate.

No collateral

A business loan is the one that comes under the secured loan category. These types of loans are generally supported by showing any security. The highest amount of funds that you can acquire is also relative to the collateral’s value. If the loan gets listed under the “non-performing asset” category, then the banks have all the rights to utilize the collateral for recovering the remaining loan amount.

On the other hand, in the case of small businesses, most of the companies don’t have any security making it very tricky for them to acquire high-end financial help for the business.

Revenue or transactions of your business

The total revenue of your trade is one of the most essential factors considered while the bank decides about the thing that whether you can get your loan application approved or not. The fund transfer in your trade is calculated as it points toward your loan settlement ability. The loan request that has poor cash flow gets instantly rejected as it lays a negative impact on your ability to pay back the borrowed amount.

How old is your business?

While approving your application to get a business loan, the banks also estimate the period for which your company has continued. Most of the banks usually consider a minimum of 3 years of business record so that your business loan application could get approval at the same time.

Other than this, the financial service providers also demand for 2 years of Income Tax returns in order to get certain about the profit reliability of the business.

What to do in case of a business loan rejection?

Firstly, try to search and look into the cause due to which your business loan got a red flag. If it can be rectified, then fix the fault at your earliest and then re-apply for the same.

Secondly, because of this rejection, the CIBIL score will obviously go low. It’s vital that you make efforts for improving your credit score as soon as possible as this will indicate your ability to get a loan in the future.

So, if you are also in search of a business loan and going through the same situation, then it would be just perfect to opt for professional advice and start with mending the negatives that keep you away from getting a business loan approved.

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