Small business loans come to your rescue when you are in a financial crunch or when you want to meet a major business expense. Whether you want to buy inventory or equipment, grab a lucrative business opportunity, expand to a different location or the same facility, or hire manpower, you can count upon a business loan. However, you may be left disappointed and in a rather unwanted position if the application for business loan is rejected.
If your loan application has been rejected, don’t worry! Loan rejection is a common and can happen to any business owner. Understanding the reason why the lender rejected your loan application can help you improve your eligibility so that you can have a better chance the next time.
Here are some common reasons why a lender may take the step of rejecting your loan application.
Poor Credit Rating
One of the most common reasons for loan rejection is a poor credit rating. The credit score required for loan approval may differ from one lender to another. Your personal credit score has a significant role to play in your small business loan approval. Even if you have been running your business successfully for a while, your loan application may be rejected if you have a poor personal credit score. The logic says that if you cannot manage your personal finances, you may have difficulty in paying back your business loan as well.
If a poor credit rating is a reason for your loan application being turned down, check your credit score and take steps to repair it. Paying your bills on time and debt consolidation are important steps to improve your credit score. Avoid making too many loan queries, check for errors in your credit report and get them fixed, increase your credit limit by contacting your credit card provider, and diversify your credit mix to improve it further.
Insufficient Experience in Business
If you have just started out, you may face loan rejection due to insufficient credit history. For instance, to apply for a business loan with Clix Capital, you need to have a credit history of atleast 2 years.
High or Low Debt Utilisation
Ideally, you must not use more than 30% of your total available credit. If you have used your complete credit limit, lenders will perceive you as very dependent on credit and may be averse to approving your loan application. For instance, if you have a credit limit of ₹ 10,00,000, and you have used ₹ 9,00,000 of it, then the lender may see you as a high-risk borrower.
On the other hand, if you have never taken any loan, you would lack a credit history that may be counted against you. Be sure of keeping track of your credit limits, including lines of credit, and personal and business credit cards.
Incomplete Loan Application or Documents
Sadly, several loan applications get rejected because the applicant did not fill the application form correctly or they did not provide all the required documents, or their documents were not updated.
Even though Clix Capital has minimal documentation requirements, there are certain documents that you need to get verified, including your tax returns, bank account statements, income computation, audited balance sheet, profit and loss account, proof of business continuity, trade license, sales tax certificate, ITR, establishment, etc. Keep all these documents updated, so that the lender can quickly verify them and approve your loan application.
Business Facing Challenges in Cash Flow
Challenges in cash flow can be more common in businesses than you can even imagine. Unfortunately, for small businesses, the wrong demonstration of cash flow can often result in business loan application rejection. Lenders want to ensure that you are capable of making your repayments on time. If your expenses are excessively high as compared to your earnings, then lenders may perceive it as a serious issue and hold back from lending you funds.
Not Meeting Eligibility Conditions
Although NBFCs have easy loan application and approval processes, there are certain eligibility conditions that you still need to fulfil. Apart from meeting these eligibility conditions, you must have valid and updated documents. Your loan application may be rejected if you do not meet any of the eligibility conditions specified by the lender you have selected and applied with. It is advisable to apply with a lender whose eligibility criteria suits you well.
Application for a Wrong Loan Type
Not applying for the right loan type appropriate for your purpose is another common reason for rejection of the application. Applying for a working capital loan to meet your business expansion expenses would be a wrong decision.
Check out the different types of business loans offered by Clix Capital and apply for the right one, whether you are looking for a business term loan, working capital loan, MLAP, or LAEP. Apply on our site and a Clix Capital customer representative will get in touch with you to guide you about the options available and which one suits you best.
Getting your business loan application rejected when you are in need of funds can be disheartening. But once you understand the reason for your loan rejection, you can work to rectify the issue and apply for a business loan again at Clix Capital. Easy online application and approval process can maximise your loan approval this time. Good luck!
You can also reach out to us at firstname.lastname@example.org or call us at 1800 200 9898