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Posted on Friday February 11th, 2022

It involves a great amount of money that has to be invested from time to time to run a business smoothly. Many of the business owners who just had started their business or had a small business don’t have ample amount of cash to ensure the smooth operation of the business and they have to Apply For Business Loan. Sometimes, it is not easy to get approved for loan and borrower face a rejection by the lender. Here, we have mentioned some common reasons behind a rejection of business loan:

Company’s Credit Rating: This factor plays a major role in availing a loan against business as it reflects the creditworthiness of business person. Every lender account on the score, business credit rating as well as individual credit score. The rating depends upon the financial history of business, tax return details; business registration details, personal credit score etc. Therefore, low rating of business unit as well as owner’s low credit score brings a greater chance of loan rejection for business.

Insufficient Collateral: It could be a major reason behind the rejection of business loan for small scale industries. Most of the lenders require any physical asset of an equivalent weight age to loan money to ensure the repayment of the loan but small scale industries don’t have adequate collateral to offer as a guarantee. As the loan quantum depends upon the value of collateral and insufficient collateral makes the lender to step back from giving you a business loan.

Poor Documentation: To avail any loan, an applicant has to provide all the necessary documents. In case of business loan, one has to provide the papers regarding company’s account statements, contracts, business plan, tax return details, legal documents, financial statements etc. Sometimes, businessmen are not able to provide accurate papers which may lead to the rejection of business loan. Hence, loan applicants have to be precise about the paperwork before they Apply For Business Loan Online or offline.

Inadequate Cash Flow: Every lender takes an account of your cash flow earned through business before approving a loan to you. Generally, small scale businesses and start-ups often struggle with adequate cash flow to fulfill the loan terms and conditions and lender may reject your loan application as your financial situation risks your repayment ability. Therefore, new and small production units need to manage their cash smartly and in better way by sharpening their accounting skills to avoid any kind of loan rejection.

Small loan quantum: Most of the times, small scale industries apply for a smaller loan amount as they don’t have a need of too much cash and their operational units are easily manageable with less funding but the lower loan quantum is not profitable for most of the lenders when it is compared to expected return. Every lender wants to go for larger loan amount as it is earns more profit for them. Hence, a loan seeker needs to evaluate all the necessary aspects of their company and underwrite the loan amount for which they get easily approved for.