5 Ways To Combat A Business Loan Rejection
First of all, don’t take it personally! It is important to understand that small business loan rejection is not a reflection on the business owner. There are a lot of reasons that a bank or financial institution rejects a loan to a small business. Typically the bank should in their rejection letter explain the reasons for having denied a loan. We take a look at some typical errors that small businesses may be making.
Sometimes a business loan rejection can be a good thing in the long run. The experience helps the business owner address the weak links in the business.
Here are the reasons for rejection of a business loan and possible solutions:
General and financial information:
When applying for a business loan, pay meticulous attention to all the documents required by the bank or financial institution. The lack of documents often causes the bank to re-evaluate its position. Further, ensure the financial documents show the same projections that you have been verbally stating to the bank and that all the numbers mentioned tie up at the end. The business plan needs to be clear and concise, and you should be clearly able to show where the business currently stands.
Collateral or not?
Most banks and financial institutions ask for collateral that the business owner can provide. Collateral is a physical property that is used as a guarantee in case a loan is not repaid. Small business owners are typically unable to put up sufficient collateral to back their loan requirement. This is where Collateral Free Loans from Bajaj Finserv play an important role to keep the small business rolling.
Is there cash in the system?
While a business may be running well, banks analyse if the cash flow allows for the monthly EMIs to be paid. The cash flow statement shows how much cash was received and how it was spent through the system. Just as profitability is important for the business, for the banks it is necessary to know that there is sufficient cash surplus to ensure loan payments.
Typically small businesses require loans that are low in value, while still being important for growth. Banks on the other hand spend the same amount of money to process both high value and small loans. Therefore the banks prefer to underwrite high value loans as they earn more from interest on higher loans. Lenders like Bajaj Finserv provides small value loans that help small business owners scale up their business and offer benefits like easy part repayment of the loan amount.
Every bank and financial institution will look into the credit history of a business owner, typically by generating a CIBIL report. Ensure that you have made timely payments for previous loans and that there is no reason for a negative remark in your credit history. Lapses in the credit history will be viewed unfavourably and often lead to loan rejections.
Bajaj Finserv has revolutionised the small business vertical with easy and stress-free loans with minimal documentation, easy withdrawal options, low interest and easy repayment options. Further, businesses have the advantage of paying interest only on the funds availed from the sanctioned limit. With these advantages it is easy for a small business to benefit from business loans.