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What to do if Your Business Loan is Rejected

  • Highlights

  • Find out the cause of rejection

  • Improve your credit score

  • Pay off outstanding debts

  • Improve your tax strategy

Securing funds for your small business can be challenging. So, what do you do if your business loan is rejected? How long should you wait before re-applying? If you are unaware of the answers to these questions, read along to know more -

Find out the cause of rejection: The first step involves figuring out why your application was rejected. Enquire from the lender why was the application rejected and how can you improve future applications. Generally, loans can be rejected based on the following reasons:

1. Poor credit score. Credit scores are important as far as the approval of business loans are concerned. Poor credit scores can be a result of insufficient borrowing experiences or challenges in servicing of past debts.

2. Low income potential. Lenders want to ensure your capability to pay off the business loan. As a result, they are likely to review your financial statements and check your debt to income ratio. In case of insufficient income potential of your business venture, there are possibilities of the loan application getting rejected.

3. Other factors like existing debt, lack of a working business plan, early stage of the business, volatile market conditions and your inability to justify the purpose of the business loan can also affect your chances of loan approval.

Solutions: Now that you are aware of the problem areas, lets figure out how to solve them quickly. Below are some pointers:

1) Improve your credit score. Your credit score gives a direct idea about debt servicing potential. Past debt records help lenders calculate the risk profile associated with your company. So, maintaining a timely payment cycle for accounts receivable, business credit card bills and invoices boost loan approval chances.

2) Pay off outstanding debts. Lenders check the amount of loan you have currently availed. Paying off other outstanding loan would not only improve your debt to income ratio but also increase your borrowing capability.

3) Improve your tax strategy. Tax exemption can help you reduce the tax burden associated and also increase your income. Hire a professional to ensure proper tax planning as lenders consider your tax return income as a measure of profitability.

How To Get Small Business Finance From Bajaj Finserv

Before reapplying, it is helpful to consider the lender’s perspective - are there any red flags in your credit history, and do you have sufficient income to repay the loan? Enquire about what matters and what doesn’t! Once you have all the relevant information at your disposal, you will be able to choose the right business loan product which is suitable for your business needs.

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