When you apply for a business loan, you typically have a plan ready. You know how you want to utilize the loan money and how it would help you boost the business. Therefore, it could be disappointing when your application is rejected. However, the lenders bear risk in lending you money and so, are critical in processing your application. They carefully scrutinize the various areas to ensure you are a safe borrower. Knowing the lender’s perspective and the reasons for rejections can help you avoid them.


Here are the top reasons why your business loan application can get rejected.


  • Low credit score


Your credit history is the first thing the lenders check while processing your application. With your credit score, they can judge your repayment history and credibility for the loan. If you have a poor credit score, they can reject your application. A poor credit score raises questions about your expenses and finance management. Your low credit score can reflect your inability to repay the loan and hence can be risky for them. Before applying, ensure to check your credit score. Ensure that your credit report is clean and has no negative remarks. Pay all your dues and credit card bills on time.


  • Too risky project


If the lender feels that there could be a high risk in lending you money, they can reject the application. There could be various factors why they could find your application risky. If you have too many debts, it could question your repayment and creditworthiness. Similarly, if you are a new entrepreneur without satisfactory backing, it can affect your credibility. Lenders refer to your past performance while processing the application. Moreover, if you are starting or venturing into an area that is economically not viable, the lenders can deny lending you a loan.  


  • Unsatisfactory business plan


If your business plan is frail, the lenders can reject your application. You must have a robust and satisfactory business plan to assure the lenders that you would be able to repay the loan. You can do so by presenting your past and future business projects and ongoing business plans if any.


  • Lack of collateral


Typically, the lenders ask for collateral to secure the loan amount they approve of. The collateral could depend on the loan value and your eligibility. The inability to provide sufficient collateral can also be a reason for loan application rejection. If your business does not have adequate assets for collateral, you can use your personal assets for the loan.


  • Unclear business purpose


You must know the precise purpose of availing the loans. The lender needs to ensure that you are using the money for the purpose you have specified. You must be able to tell them if it is for raw materials, renovation, machinery, research expansion, etc. If you are unable to specify a satisfactory business purpose for the loan, your application can get rejected.


It is not uncommon to get your application rejected if you are unaware of the lender’s perspective. You must know what factors are considered while your application is reviewed along with your business loan documents that are submitted. Consider these points before you apply for a business loan and improve the chances of approval. Apply now!

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.