Business loan can be one of the most beneficial financial products when it comes to funding the growth of a business. It also becomes crucial, enabling a venture to make most of the available opportunities.
However, business loan approval depends on several parameters, and such an application stands to be rejected if all these parameters are not met. Entrepreneurs may shy away from availing a business loan in Ahmedabad or in any other city for the possibility of such an application being rejected.
The most effective way to manage such a problem is to be aware of the major causes of business loan rejection.
Few reasons why business loan application get rejected
While the following reasons are not exhaustive but this amount to be the major ones for loan rejection –
Inadequate cash flow
Cash flow of a business indicates the entity’s repayment capacity after covering operating expenditure. If there is poor or insufficient cash flow, the loan application may be rejected. To improve cash flow, the following measures may be adopted –
Doing away with unnecessary expenditure
Putting in place an emergency fund
Maintain proper invoicing
Low CIBIL score
A high credit score is reflective of efficient expense and budget management. Conversely, a poor score shows that financial prudence may not have been exercised. Hence, before making an application, it is advisable to check the CIBIL score from credit rating agencies.
The credit score of a business owner is also important in this regard. To avoid rejection of loan application, it is better to apply when both the scores are favorable. It is one of the essential financial habits that business owners should have.
Lenders offering business loans in Ahmedabad or any other place are cautious of extending loans to businesses that have too much existing debt to begin with. Too much debt reflects poorly on the repayment capacity of the business. So, if a business has a lot of debt, potential creditors may be turned away.
Most of the lenders look for the Profit & Loss Statements and ITRs from previous years. If it is a fairly new enterprise, then the required record would not be available to establish the financial standing.
Absence of a robust business plan
Lenders would seek to assess the planned end-used of the loan amount or the business plan. If there are discrepancies or inadequacies in the plan, it may lead to business loan in Ahmedabad being rejected.
Moreover, if there is a high risk present in a specific field, the application for a business loan is also more likely to be turned down. It will hold the same if there are significant decisions taken that may have an adverse impact on an applicant’s business vertical. All such risks are taken as potential red flags which may hinder repayment of the loan.
Business loan procedure becomes easier if these aspects are taken care of. Furthermore, lenders such as Bajaj Finserv extend the pre-approved offer to existing customers, which facilitates the application process. Such an offer is available on a range of financial products like business loans, personal loans etc.
Entrepreneurs’ can ensure that the business loan is approved by taking only a few measures. It helps to stay updated with the latest trends in the market. It is advisable to maintain a healthy CIBIL score, pay off all outstanding debts, and formulate a robust business plan. These would also prove to be effective to avoid a business financial crisis.