The borrower is required to fill business loan application to apply for a loan. A business loan is a perfect option to boost the business financially. It offers capital to start a new branch, launch a new product line, invest more in marketing, and grow business. There are n number of loan lenders operating in the market that offer small business loans at basic eligibility criteria. And to apply for a business loan with them, the business owner is required to fill a loan application.
In order to get the loan application approved in the first time itself, it is important that the business owner fills the business loan application in the right way. Additionally, there are several other factors as well that lead to loan application denial by the lenders. As a business owner, you must know about these factors which can affect your loan availing ability.
Let’s take a look at these factors:
Low CIBIL score is one of the top reasons why loan application is rejected. CIBIL score is a numerical representation of creditworthiness, between 300 and 900. The minimum score for a business loan is 650. Many borrowers do not know their CIBIL score before applying for a loan and therefore, they face rejection. So, it is important that you know your score. And in case it is below the required one, you need to first improve it.
Poor Cash Flow
Cash flow is the net amount available in cash that is being transferred into and out of business. Loan lenders consider cash flow to determine how much revenue a business generates. And to see if it will be able to repay the loan on time or not. If cash flow is not strong, then lenders will see your business as a risky profile. And your loan form will be disapproved.
Most business owners do not offer small business loans to start-ups. The prime reason for it is that a start-up will not be able to provide the required business loan documents, such as ITR, bank statement, etc. Also, the business owner will not have a good loan CIBIL score to show to the lender. So, a minimum of years of business vintage is required.
If the business owner is already having a loan running on his name, the lender is most likely to disapprove the loan application form. The main reason for this is that the business revenue will first go towards repaying the ongoing loan. Therefore, there are chances that the businessman would not be able to pay for the new loan. Nevertheless, the debt-to-income ratio will also be considered here. If it is more than 30%, then the application will be declined.
All these factors together contribute towards denial of the business loan application form. That said, if you do not meet the business loan eligibility set by the lender, then also your application will be disapproved. So, in order to get the application approved and get your business loan requirements met, you need to ensure that you have a good CIBIL score and you meet the eligibility criteria of the borrower.
You can also register your business for free at the Connect App by ZipLoan to build your business network. Through the e-marketplace, you can create a business profile, list your products/services, find business, discover new business opportunities, and build connections.