What to do if your Business Loan gets Rejected
Small businesses always face the problem of insufficient funds and business loan remain only the option. After thorough research, market planning and articulating a business plan, entrepreneurs of small business houses need to figure out how to get a business loan.
Research shows that more than 30% of small business enterprises discontinue production owing to inadequate funds. Even after chalking down an effective business plan and completing all necessary paperwork, business enterprises fail to bloom owing to lack of enough resources and proper funding. So, why do business loans get rejected?
Lenders may present entrepreneurs of small business ventures with questions like Why Do You Need A Business Loan?’ or even how do you plan to reimburse your loan?’ Owing to market uncertainty and risks involved, entrepreneurs often fail to reserve a Plan B. Absence of sufficient working capital or inconvenient loan facilities eventually lead to the company shutting down.
Why did the bank/financial institution reject your business loan?
Wondering why your call for funds was rejected? Loan applications not abiding by the lender’s guidelines or policies result in straight rejections.
a)Low Credit Score:
Small business enterprises often lack a proper credit score. The credit score defines your credibility and position in terms of repaying loans. Lenders will verify an entrepreneur’s credit score before proceeding.
Without a valid guarantee, lenders often refuse to extend a loan to entrepreneurs. In case you fail to repay the loan, lenders look to suffice the unpaid amount with tangible assets like real estate or equipment.
Most money lending ventures prefer to advance loans to experienced business enterprises because of their credibility and experience in handling market risks. Lenders look for constant inflow of revenue, and overall track record as parameters to consider a loan application.
d)Unfit Business Plan:
Lenders often reject applications for business loans straightaway in the absence of an appropriate business plan. Business plans are the skeletal structures which define the modus operandi of a business venture. Before even asking ‘How to Get a Business Loan?’ entrepreneurs should concentrate on preparing an estimate of sales, profit projections and dealing with emergencies.
Rising from the ashes – Strategies to undertake after rejection of a business loan:
The first step entrepreneurs should undertake right after loan rejection is to request an explanation. Understanding why your call for a business loan was rejected will help you to successfully re-apply after thorough scrutiny. Here’s what you can do if your business loan has been rejected:
Define your Business Requirements Properly:
Prior to advancing a loan, lenders ask young entrepreneurs ‘Why do you need a business loan?’ Failure to provide a decent explanation results in denials. Therefore entrepreneurs should carefully address their requirements and then seek funding. You might choose to revamp your business plans or take necessary steps to meet a lender’s requirements. Additionally, entrepreneurs should lay stress on internal business parameters like cash flow, annual revenue and expected revenue generation.
Improve your Credit Scores:
Lenders look at credit scores as a litmus test to one’s repayment capabilities. Agencies such as CIBIL acquire your credit history from various sources and provide a credit score. For smaller business enterprises, individual credit history also works.
Plan B – Alternate Plans:
Entrepreneurs can always look for other banks/financial institutions even after they have been rejected by one. Requirements for advancing loans differ and some institutions may even offer smaller funds if you gave a low credit score, but at higher interest rates. Notably, NBFCs provides easy business loan for entrepreneurs at competitive interest rates and minimum paperwork.
The above points are a clear reflection of the necessary steps required for avoiding the cancellation or rejection of business loans.