Reasons Indian Businesses Faces Rejection for Small Business Loans - Finance Buddha

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Starting a business or running a business
involves a handsome amount of money that has to
be invested in the initial stage. Many
entrepreneurs dont have liquid cash and hence,
to ensure the smooth functioning of the business
they have to opt for business loans. However,
getting approved for a business loan is not that
easy and many times, the applicants do face
rejection by the banks. Various factors play an
important role and because of which the
applicants have to face rejection. 
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Here are the common reasons behind the rejection
of business loan application

• Companys Credit Score
• Inadequate Collateral
• Improper Paperwork
• Lack of adequate cash flow
• Small loan amount
• Business established in a risky industry

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Companys Credit Score
The companys credit score plays a major role
when it comes to availing of a business loan. The
credit ratings directly reflect the
creditworthiness of a businessman. And, hence
banks take into consideration both the scores,
that is business credit score as well as personal
credit scores. 
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nesses-faces-rejection-for-small-business-loans/
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Inadequate Collateral
Having inadequate collateral is one of the major
reasons behind loan rejection for small
businesses. The lender usually requires the
physical property (Collateral) which is provided
with a guarantee to them in terms of
non-repayment of the loan. But, new or small
businesses may not have such collaterals to be
offered as a guarantee. Also, many dont prefer
to use their personal assets such as cars, homes
etc. as collateral. 
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nesses-faces-rejection-for-small-business-loans/
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Improper Paperwork
To get approved for a business loan applicants
are expected to provide all the necessary and
required information. Also, the lenders ask for
documents including company bank account
statements, financial statements, contracts,
personal and company tax returns, leases, legal
documents, business plans etc. Because of the
lack of experience, many times, the company is
not able to provide accurate, effective and
appropriate documents, and this leads to the
rejection of the loan application.
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nesses-faces-rejection-for-small-business-loans/
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Lack of adequate cash flow
The lenders always look at the cash flow which is
being earned by the businesses before they decide
to approve the loan. Understandably, small and
new businesses often struggle with the problem of
the cash flow, as the same is not too consistent
or maybe adequate to fulfil the loan requirement.
By keeping an eye on the cash flow, the lender
assesses the repayment ability of the borrower.
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nesses-faces-rejection-for-small-business-loans/
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Small loan amount
Most of the small businesses are opting for the
small loan amount as they do not have a too high
need for cash. The small businesses are easily
manageable with lower funding. However, for the
lenders, the lower loan amount is not profit
earning when compared to the expected return. The
lenders want to go for underwriting the larger
amount of loan as it is more profitable for them.
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nesses-faces-rejection-for-small-business-loans/
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Business established in a risky industry
There are few industries in which there are
always high chances as far as failure is
concerned. For example, if an entrepreneur wants
to open up a stock broking company, the business
will always be dependent on the market
fluctuations. Hence, the lender may not want to
provide the loan to the businessman.   As you can
see there are several reasons which can lead to
the rejection of small business loans.
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nesses-faces-rejection-for-small-business-loans/
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Thank You
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