Three Factors that May Reject Your Business Loan Application

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Business loans are necessary if you plan to launch a startup or refurbish an existing organization. The funds collected are generally utilized to purchase equipment, secure inventory, hire employees, rent spaces, and cover a wide range of other expenses. But business loans are difficult to get. Pay attention to the below-mentioned three factors that may impede the approval.

  1. Bad Credit Report

Lenders depend on a credit report to understand the borrower’s capacity. If your report shows that you have not paid back debts diligently in the past, you might be rejected.

At times, the most efficient individuals suffer from credit problems for reasons not under their control. That, unfortunately, stops them from entering the world of small business.

It is impossible to qualify for a loan if your credit score is not more than 700. The number 720 seems magical because when your score is above it, the chances of getting a loan increase phenomenally, and when your score is below it, the chances fall.

Have you exerted enough effort to change your credit score? Is it still far from perfect? If yes, you may opt for the nonconventional financing options.

  1. No Business Plan

Having a strong plan is much more appealing than spontaneity regarding finances. The lenders providing business loans wish to see that you have formulated a proper plan for your company. Remember, applying for loans with no plan or an incomplete one will never bode well.

A typical business plan usually includes a summary of the company, products, monetary conditions, and position in the market. If you feel your plan does not have the potential to persuade the lender, don’t hesitate to get in touch with an expert who can evaluate it and provide feedback.

Also, explain how you wish to utilize the borrowed money. Instead of asking for Rs.1,00,000 in working capital, you must say you need Rs.35,000 for inventory, Rs.40,000 for new hires, Rs.15,000 for store upgrades, and Rs.10,000 for promotion. This shows you know how to deploy the funds efficiently.

  1. Restricted Cash Flow

Cash flow is the foremost thing a lender considers when analyzing your company’s health. Cash flow refers to the cash you have to pay back loans. Inadequate cash flow is a flaw that no lender can afford to ignore. Calculate the cash flow quarterly. Then you will be able to maximize it before approaching potential lenders.

Being aware of the cash flow is like taking preventative medicine. You can wait for your company to get sick, or you can undertake measures to prevent the sickness.

If you are not confident about your financial capacity or position, you must contact a reputed financial planner. He/she will let you gain a fresh perspective and create an action plan that would successfully address the lacking areas.

Before applying for a business loan, please try figuring out what information the lenders need so you can arrange the appropriate documents. Generally, you need to submit at least three years of tax return statements, three months of bank statements, ownership proof, and accounts receivable reports. You must be patient because it can take weeks and, at times, months for the application to get approved.