Whether you are in the initial phase of your business or you need money for an expansion project; the availability of funds can make or mar your venture. Fundamentally, the chances of getting a business loan depend on the confidence of a lender in your ability to repay the loan amount.
Getting your loan application rejected by a lender even after fulfilling the business loan eligibility criteria can be very disheartening. However, if you try to understand the reasons better, you’ll soon be on your way to receiving the funds you need for your business. Here are some of the common reasons that lead to the rejection of a business loan application:
Credit Utilization Rate
In simple terms, it is the money you owe to the bank compared to the total credit that’s available to you. Lenders prefer a scenario where you are not utilizing over 30% of your total credit amount.
For instance: Say the total credit limit of all your cards combined is Rs. 100,000, you should ideally keep your overall credit card balance under Rs. 30,000. Following this practice will keep your credit utilization rate right where it should be.
Low Credit Score
Many entrepreneurs don’t know that there exists a separate business credit score. They tend to assume that it’s just the personal credit score that’s taken into consideration. However, your business credit score is equally important when it comes to the approval of your business loan application. Particularly, when you happen to be the sole proprietor of the company, make sure that you check your overall credit score before applying.
Age of your business
One of the reasons for your business loan application getting rejected could also have to do with the age of your business. Nobody wants to be the first lender to a relatively new business that has been running for just a few months. They feel much safer while lending money to an established entity. If this is where you are struggling, go for options like crowdfunding.
Insufficient business revenue
Quite obviously, if your business is not making enough money, it raises a red flag that you might be incapable of repaying a loan. Moreover, if your expenditure exceeds your income, you’d be well advised to start working on your cash flow.
Applying with multiple lenders
When you apply for business loan with several lenders in quick succession, your overall credit score takes a hit each time. A lower credit score reduces your chances of getting a loan approved the next time.
When you apply for a secured, quick business loan, the value of your collateral also becomes an essential factor in determining the fate of your loan application.
Improve your business loan eligibility by considering the above pointers before applying for a business loan. If you are seeking more information about a loan for business and are looking for a trusted partner, reach out to Tata Capital today.