Small or medium-sized business enterprises face difficulties to get loans from banks even though they play a crucial role within the economical running of the country. SMEs put our country on means of socio-economic betterment, accompanied by a powerful push. Hence in that case owners can apply for the loan from various NBFCs & private lenders.

Business loan rejection seems to be the initial stage of every entrepreneur. You’re probably here because your business loan application has been rejected or you want to avoid rejection. Let’s be honest, we’ve all been here, faced rejection in one way or the other so no need to fret. This article includes everything you might want to know about your current situation. It prepares you to have a better chance at having that start-up you always dreamed of.

7 Steps To Take To Avoid Getting Rejection

1. Analyse your condition

The first thing you should do is analyse your state. Whether your application is already rejected or you are yet to submit it, save yourself some time and examine it as a lender would. Check for any red flags or any other errors which could act as a reason for rejection and clear it out. It will lessen the blow. 

2. Sufficient collateral

The lender might want more collateral which acts as a guarantee that the loan will be repaid. You have to be careful with this one. Only when you have surety about the success of the business should you take the risk because if you are unable to make loan payments on time, they will seize your collateral which could be your home or your car. But here’s good news for you: Fullerton India offers collateral-free loans which allow small businesses that are still gaining a foothold in the industry to blossom into successful ventures early on.

3. Credit score 

A low credit score is one of the main reasons for business loan application rejection. Lenders not only look at your personal credit scores but also your business credit history while assessing your application. They do this because by seeing your old records of borrowing and repaying loans, they get a better picture of your business. A credit score about the range of 700 is considered good, but one should always work on achieving a credit score near to 900. You can request a copy of your credit scores for free online. Please improve it by applying for credit cards in the firm’s name and working with vendors who report payments.

4. Pending debts

Please pay your prior debts first and then apply for a loan as lenders check business’s monthly debt obligations and if they think that you cannot handle another one, you may be denied of the loan. Lenders evaluate your debt-income ratio, that is the percentage of a consumer’s monthly gross income that goes toward paying debts. A high ratio of debt income can induce negative effects on your finances as well as your credit score. 

5. Business performance

If you’re new to the field, there will be a lot of doubt and hesitance coming from the other party that is the lender, it’s necessary to make a solid case for your business as to avoid being denied the loan. A plan laid out would make you appear more confident and prepared for this and helps convince the lender that you’re capable of repaying the loan. 

6. Cash flow

Cash flow is one of the primary worries a lender has when determining whether to approve a business loan. They need to be certain that you have enough income to not only cover your business expenses but also pay back the loan and still have a cushion. If your income is inconsistent, it will verify as a warning sign.

7. Apply somewhere else 

If a credit institution denied your application, you could always find another lender. There are a lot of lenders nowadays who are offering loans to small businesses. It might be better than applying to an NBFC as some of them have better terms and conditions and may curate something according to your case. Fullerton India, Muthoot Fincorp, is some of the companies where you can apply for loans. 

Final Thought

Getting your application rejected can be dispiriting when you’re in dire need of finances, but you have to look for that open door. It only means that your business plan or your application was missing a little something or you are not fulfilling the business loan eligibility criteria. Indulging one of these steps above may help you out of your situation. Although we all know that business loans help to expand SMEs. Now you know if your lender wanted more collateral or if you were falling behind on your credit scores. If nothing at all you would have acquired knowledge, preparing you for your future ventures.