Business owners need to capitalize on upcoming market opportunities to increase revenue and stay competitive in cluttered industries. Maintaining a steady cash flow is important to manage your finances carefully. However, due to rapid fluctuations in consumer demand and other factors that impact the economy in general, certain businesses may occasionally find themselves in a financial crunch.
This is where Business Loans come into the picture. These loans are unsecured financial instruments, and you can find online Business Loan applications within minutes in case you require funds immediately.
Business Loans are an ideal choice for covering expansion-related expenses. You can use an unsecured Business Loan to infuse working capital, hire trained staff, buy expensive machinery and equipment, expand your product portfolio, invest in digital marketing and advertising, and even consolidate high-interest debt.
Even though Business Loans are easy to obtain, there are instances when many loan applications have gotten rejected due to various reasons.
In this story, let’s look at eight reasons why your Business Loan application gets rejected.
1. Bad credit score:
Your business credit score determines the creditworthiness of your enterprise. Similar to personal credit score, it is one of the main criteria that you have to fulfill to have lenders even consider your loan application. Some lenders take your personal credit score into account as well to make sure that you are a reliable borrower.
Many small business owners fail to get approval on their Business Loan application because they don’t have a credit score above 700. This could be because of late payments, inconsistent cash flow, or past payment defaults. Hence, before applying for a Business Loan, check your credit score and rectify any errors in your credit report.
2. Inadequate business vintage:
Some lenders require a minimum of 2 years of business vintage to approve your Business Loan application. Most start-ups and micro enterprises fail to meet this criterion. If you are borrowing funds to build an enterprise from the ground level, you might find it slightly difficult to qualify for a Business Loan.
However, different lenders have different business vintage requirements. Hence, make sure that you carefully research your options before applying for the loan.
3. Turnover limitations:
Many lenders require businesses to have a minimum turnover to be eligible for a Business Loan. If your loan application is denied due to limited cash flow, evaluate your finances and check your revenues and expenses. You can monitor your cash flow weekly to understand the pain points. This will not only help you in qualifying for the loan but also in managing your finances in a better way in the future.
4. No collateral:
Business Loans are usually collateral-free. However, some lending institutions might require you to submit collateral. This makes it difficult for micro and small businesses as they don’t have enough assets to pledge. Therefore, ensure that you apply for a collateral-free Business Loan.
5. Incomplete documentation:
Ensure that you check the documentation requirement carefully before applying for a Business Loan. Mostly the requirement is easy to fulfill, and lenders only need your basic documents for a Business Loan online application.
Sometimes, lenders might require extra documents to evaluate your creditworthiness. Businesses that are not able to procure the required documents fail to get approval for their Business Loan application.
6. High existing debt:
Poor management of existing debt can result in the denial of online Business Loan applications. The debt utilization ratio is taken into consideration. In case you have existing debt, try to clear it out first or minimize it as much as possible before applying for a Business Loan online.
7. Industry preference:
While your business is doing well, you may be operating in a sector that is considered ‘risky’ by lenders. Since Business Loans are unsecured, lenders do not have anything to recover their funds in case of default.
Consequently, lenders are wary of giving loans to businesses that are operating in ‘risky industries’. While you cannot change your domain, you can change your lender. Choose a lending institution that has less stringent requirements.
8. Incorrect information:
Make sure that you are putting in the correct information regarding your business while filling out the loan application form. A slight mistake in such information might result in rejection.
If you wish to avail of a Business Loan online, ensure that you have a good bureau score, sufficient business vintage, and all the documents that are required for the online Business Loan application.