10 reasons your business loan was rejected!

You need business loan when you want to expand your business, want bigger office place, purchase new equipment or hire new resources for business growth.

Did you know that banks, NBFCs rejects nearly 60% of the business loan applications they receive?

What is the concern that make the lenders turn down borrowers request? Let us look at some reasons for business loan application rejections.

1. You have poor credit history: When banks evaluate business loan applications, the applicant’s credit history is one of the most critical factor they consider. Have you missed any loan payments or defaulted on an earlier loan? Even credit card payments or utility bills can affect your credit history & rating. May be  your credit report are carrying some errors.

Keep a tab on your credit rating & get errors resolved if any well ahead in a time before applying for business loan.

2. You have insufficient cash inflow: As a business loan applicant, it is necessary to demonstrate the financial stability of your business to lenders. Are you able to meet operational expenses comfortably?(lease payment, utilities, employee salaries, etc.)

Business owners should be able to pay the loan EMIs & save some amount for emergency expenses also. A poor cash flow indicates a weak financial health of business & lenders see this as roadblock to a borrowers’ repayment capacity.


3. You are guarantor to a loan defaulter: In the past, have you signed up as a guarantor on the loan & that person defaulted on the loan? In such a case you will be required to tick off the loan. This could land you in trouble when you apply for a loan.

4. You have incomplete documentation: Incorrectly filled business loan forms & improper documentation are the most common reasons for rejection of business loan applications. Be it the loan application,  business plan, bank statements or financial statements collect them & save them online well in advance to avoid last minute rush.

Also lenders look for information such as how you plan to spend the loan money & repayment plan you have in place.

5. You have insufficient or no collateral: Collateral is the security or asset against the lenders approve your business loan. In case of a default,  lender uses the collateral to recover losses. If you apply for secured business loan, but your collateral value is less as compared to the loan amount, your application will possibly be rejected.

Thus, use an appropriate collateral if you have one or apply for an unsecured business loan.

6. You have a small size of your business: The lender will consider the nature & size of your business while estimating your loan application. Apart from a detailed business plan, they will weigh the industry of your venture, core management team, business health history & finally the cash flow trend.

7. You have pending legal proceedings: If there is any pending lawsuit against you or your business, lenders may not approve your business loan, unless it is resolved completely.

8. You have a recent history of loan rejections: If you have been turned down for business loan on earlier occasions by banks, the lenders you are now applying to would like to know why your loan request was rejected.

Thus, if your loan application has been rejected in the past, it is best to find out the reason for rejection & work towards rectifying the same. This is doing in advance will save your time & you don't have to jump from one lender to another.

9. Your co-applicant is a defaulter: Check if your co-applicant is a defaulter. Even if you have a good credit rating & no default history at all, applying for business loan with a defaulter co-applicant can damage your chances of loan approval.

10. End Use of Loan Amount:

What is the purpose of taking loan? If you are planning to settle your old debts with this loan then your application might be rejected. Banks approve business loan for the purpose which will help him to grow his business like purchasing machinery, expanding business operations etc.  

These are some of the reasons for which your business loan applications can be rejected. Loan manager can take a call in minor cases to approve your loan reque

st. Your personal relations and credibility in the eyes of bank plays a crucial role.

www.Dealsofloan.com provides business loans to startups, small businesses and proprietors through various banks and NBFCs. Comment below if you have any questions in mind. For individual queries I can be reached at info at dealsofloan.com. 


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Comment by Manoj Sharma on May 5, 2017 at 12:09am
Busines Loan available without ITR return in Pune.. Also available Busines Loan for 1 year above firms in Pune.

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