Banks are selective when it comes to lending to small businesses. The risk involved in such loans is high for the banks and financial institutions primarily because of the high percentage of defaults in this segment. If you are a small business owner and have faced rejection of your loan application, then you must try and analyse the reason behind it rather than feeling dejected.
Rejection of your business loan can happen due to a variety of reasons, the most common being:
• Bad / No credit history
• Ambiguous Business plan
• Sporadic cash flow
• Lack of / Insufficient collateral

Also Read : Everything You Need To Know About Online Business Loans

There can be many other reasons for the rejection of your loan application. These tips can help you overcome this hurdle and get the ball rolling:

Find Out Why Your Loan Application Was Rejected:

You must understand the kind of companies the institution provides loans to and the specific requirements. Do your research before applying for the loan. If you still find that your application has been rejected, then talk to the lender and try to understand the reason for rejection. Once you know the reason, you can work on it and re-apply. It is also important to find a lender that caters to your business-type. Certain banks or financial institutions might not have lent to a certain type of business. A thorough research can save you time, effort and money.

Increase Cash Flow and Revenue:

Nobody lends to a loss making enterprise. A poor cash flow, lack of profitability and revenue are among the most common reasons for rejection of small business loans. Automating your processes and cutting down on unnecessary expenses can also help in increasing your cash flow and revenue. However, you must be prudent to identify the need of a loan early and submit a loan application when you can show a healthy cash flow and revenue.

Credit History is important {Business & Personal}

Business loans can be secured and unsecured. Secured business loans are proportionate to the collateral provided and easy to get. In unsecured business loans, your credit history and credit score can be the difference between approval and rejection of your application. Personal and business credit scores are checked by lending institutions to determine your eligibility. Maintaining a good credit score is a practice and not a one-time activity. You must ensure that you are creditworthy at all times.

Look for alternatives:

Get in touch with various large and small banks, financial institutions, crowd funding platforms and other alternative resources. Each of these will have their own eligibility criteria and policies. With the plethora of options available today, you can find a lender that caters to business that matches your profile.

Also Read : Importance Of Having A Good Amount Of Working Capital

To sum it up:
A Business Loan is a great way to secure your financing and increase working capital. Keeping these tips in mind can help you avoid rejection of your loan application. Also, understanding the importance of the eligibility parameters laid down by banks and financial institutions can help you prepare yourself better.

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