It takes a lot of work to run a small business in India. Small businesses find survival difficult due to rising competition, slim profit margins, and lack of funding. Your small business might occasionally require additional funding or small business loans. This loan could help you achieve your business objectives, such as expanding your business, moving it online, or diversifying it.
Although the online business loan application process is straightforward, there are a few things to remember to avoid rejections:
1. Incomplete Application:
Although it may surprise you, this happens way more frequently than expected. Many people need clarification on the complicated financing application form and the list of supporting documents, such as financial statements, tax returns, legal documents, and bank statements. Therefore, before submitting your financial loan application, always check it thoroughly.
2. Poor Credit Score:
Your lender will inevitably check your credit history after you apply for a business loan. The credit score reflects the creditworthiness of borrowers and evaluates their financial history. If a company doesn’t pay its debts back on time, its credit score drops. Some small businesses struggle with low credit scores, which causes lenders to turn down their loan requests.
3. No Collateral:
Lack of collateral is another factor that causes business organizations to suffer from loan rejection. Although using collateral is not required for business loans, some lenders demand it as a guarantee.
4. Inconsistent Cash Flow:
Lenders want to ensure your cash flow is consistent, so it becomes easier for you to repay it. You must be able to afford your business expenses and loan payments and have some extra money set aside in case you incur unforeseen costs. A healthy cash flow reflects your capacity to repay your loan and your company’s strength. Cash flow problems are a common reason for bankruptcy declarations by businesses.
Therefore, even if you only make enough money to cover your daily expenses and loan payments, banks are still unlikely to approve your loan because they view you as a high-risk customer.
The worst feeling is being turned down for a business loan when you need funding. But remember that you can try again, and it’s not personal. Despite the initial frustration, it can be a valuable learning experience that will prepare you for success in the future.
