Reasons Indian Businesses Face Rejection for Small Business Loans

by BidAssist .. Government Tender

Loans are essential for any business operation especially if it is ready to expand or has many market opportunities available to explore. While availing a business loan may sometimes be tricky, especially if it’s a new business, there are many ways in which it can be easily sought.

Loan approval considers multiple parameters and a loan application may stand a chance of being rejected in case any of these are not met. The perfect way to manage loan rejection is to conduct thorough research of the reasons behind it and to look for ways to improve them. This way, the applicants will be better qualified to make the next loan application. Let’s understand more about possible reasons for loan rejections and ways to avoid them.

Low CIBIL Score

A bad credit score or low CIBIL score negatively impacts your business loan application and the loan gets rejected instantly by the bank. CIBIL score is a 3 letter numeric that should be maintained above 700 out of 900 to avail loans at low-interest rates. People with CIBIL score below 650 or ranging close to 500 or below, tend to face loan rejection quite often. So, before applying for a loan, check your CIBIL score online and start maintaining a healthy CIBIL score to secure your financial future.

Cash Flow Challenges

A business’s cash flow analysis reflects its capability of repaying the loan after considering the operating expenses. Lack of cash flow availability can affect lender confidence in the business. Some of the factors to consider for improving the cash flow include minimising unnecessary expenses, detailed invoice maintenance, and establishing an emergency fund.

New or High Risk Business

Numerous organizations have pay issues occasionally. Low income, income holes, and various issues that an advance can’t fix are for the most part warnings for banks. On the off chance that banks see that there’s no money for ordinary activities, it shows that you will not have the option to make reimbursements on a credit. Before granting a loan, lenders generally consider the business’s past performance track record and market presence. However, as a new business, it isn’t likely to increase your business history overnight. In such cases, it’s better to opt for alternative funding to improve your eligibility. For first-time businesses, it makes sense to consider alternative funding options such as crowd-funding, small business loan from the government, etc.

Lending institutions think thrice before sanctioning business loan with high risks. If we consider today’s situation of COVID-19 and related difficulties like lockdown and scarcity of vaccination, etc. It is not feasible for banks or NBFCs to offer lending support to start a gym, salon, restaurant, cinema, travel company, hotel, shopping mall, etc. These types of businesses are considered as high-risk ventures by the lender.

Lack of Collateral

Investors consider tangible security while investing in any business. Therefore, a business must have a clear picture of the available inventory of assets that can be used as collateral before making a loan application. For businesses that are unable to offer tangible assets, mortgaging personal assets is a good way of getting the required amount of funding.