Getting a business loan application rejected is the worst nightmare for all the small business owners.
A small business owner decides to avail a business loan when there is an urgent need of cash. There are many times when a when a business faces a paucity of funds or require additional finances. This can be due to late payment from the client or when witnessing a growth opportunity. To meet these unexpected contingencies, a business owner’s best option is to avail a small business loan.
In the situation of the urgent need of a business loan, getting the business loan application rejected is an unwelcoming thought for a business owner. It is indeed true that securing an SME loan or small business financing in India can be difficult. But knowing the reasons for rejection of loan application and ensuring not to commit them, can help the small business owner in the best possible way.
Let’s take a look at the reasons for business loan rejection:
Low CIBIL Score
Also Read: How Can Business Loan Apps Be Beneficial For Small Business Owners?
The high CIBIL score is a major business loan requirement. The small business loan rejection rate for the low CIBIL score is very high. A good CIBIL score, or as many say credit score, signifies borrower’s expense management and creditworthiness. So, before applying for a loan for business, it is imperative that you check your CIBIL score. And in case it is low, work on improving it before applying for the loan for business without security. The minimum CIBIL score for a business loan is said to be more than 750.
Not Meeting Eligibility Criteria
Not meeting the business loan eligibility set by the lender is the most common reason for getting a business loan application rejected. Different lenders have different eligibility criteria. While you must be eligible for a business loan from one lender, you might not be fulfilling the criteria set by another lender. Before applying for a business loan, check the eligibility criteria specified by the lender you are applying to and then assess your business loan eligibility accordingly. You must apply for a business loan only when your eligibility is higher than the lender’s requirements.
Also Read: Unsecured Business Loans: How Are They A Saviour For Small Businesses?
Improper documents can also lead to getting your business loan denied. Submitting improper or incomplete documents is one among the common reason for business loan denials. So, make sure that all your documents are in place before applying for a business loan to get your business loan application approved.
Too Much Debt
The obvious concern for any lender is the repayment of the loan for the business. And if your business is in debt, it will concern the lender. So, in order to get your business loan application approved, maintain low credit balance. Also, pay all your debts on time.
Now that you know 4 top most reasons for the rejection of business loan application , you can take care of the mistakes and apply smartly.
ZipLoan, an RBI registered NBFC, offers business loan to small businesses at the best business loan rates. The NBFC offers different business loan products to ensure that all the business financing needs of the small businesses are met.