What Steps Should be Taken When Your Business Loan is Denied?


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If you are a small business owner then availing finance may becomedifficult. This is because banks often consider small businesses as high-risk with a greater possibility of defaults.

Lenders adopt a selective strategy while approving loans for small business owners. Furthermore, unstable cash flows, undefined business plans, lower revenue, poor credit history, and insufficient collateral are common reasons for rejection.

If your business loan application is rejected, do not worry. Here are five things you may consider to increase your chance of receiving a loan approval.

  1. Know the reason for rejection

It is important to ask your lender why your loan application was rejected. This not only helps you overcome your limitations but also ensures the reason was logical. In case your application was rejected due to a lower credit score, you may check the same to ensure there are no errors. It is recommended you do not hesitate to ask questions as it will help you improve, thereby increasing the possibility of receiving approval in the future.

  1. Hire an experienced accounting professional

Managing accounts is crucial for your business but is a cumbersome process. With other things on your mind, there is a chance you may make mistakes or you may not have adequate knowledge. Hiring an experienced professional to manage your accounts is advisable. In addition to ensuring your books are managed properly, having an experienced professional makes a positive impact in the mind of lenders.

  1. Improve revenue and cash flows

Important reasons why business loans in India are rejected include lack of revenue, poor cash flows, and lower profitability. These factors are crucial to determine the financial health of your business. One way to improve cash flows is to ensure timely collections from debtors. Providing discounts for prompt payments or using technology to automate the payment receiving procedure is recommended. Furthermore, profitability is directly impacted by expenses and therefore eliminating unnecessary expenditure is important. If the financial health of your business is poor, it negatively impacts the lenders’ perception. They feel that you may not be able to repay the loan on time and this may lead to the rejection of your loan application.

  1. Enhance personal and business credit

Lenders generally offer secured loans against certain types of assets. If you do not have the required collateral, you may opt for an unsecured loan. However, the unsecured business loan interest rates are higher and are not easily available. To improve the possibility of qualifying for an unsecured loan, you will require a strong credit score. If the score is not high, it is important you take the necessary steps to increase the same. Some steps you may take for this purpose are as follows:

  • Settle all existing debt
  • Make timely payments of all your bills
  • Ensure there are no defaults on any type of payment
  • Pay all equated monthly installments (EMIs) on outstanding loans on time

If you need to start developing a credit history, it is recommended you avail of a credit card. The card may be used to make purchases and pay bills and develop a credit history. When lenders perceive your efforts towards enhancing personal and business credit, the possibility of approval of your loan application significantly increases.

  1. Ask for a second opinion

Several lenders employ expert advisors that help borrowers in re-evaluating rejected loan applications. Using their experience and expertise to know more about your application is recommended. You may also consider obtaining a second opinion from the lender’s next level department that reviews loan applications.

In addition to banks, several non-banking financial companies (NBFCs) offer such loans. It is recommended you contact these institutions and other available alternatives to avail of business finance. Since every lender has specific eligibility criteria, there is a possibility that certain institutions approve your application.

An excellent option is to apply through an online lending platform. These websites extend your application to several lenders simultaneously. Therefore, you are able to access multiple institutions from a single platform. This saves a lot of time and makes it convenient for you. However, ensure you opt for a reliable lender to receive the best deal.

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