Have banks been turning down your loan requests? If YES, here are 10 secret reasons banks reject your business loan application and what you can do about it.
We all have those moments. Those moments when you have an urgent need but lack financial means to settle it. When you have a smart business idea but lack the financial resources to invest in it. When your car has become so bad but you do not have enough savings to get a replacement.
You see, everyone needs financial help sometimes, and loans have become an integral part of our lives and they are like life savers for a lot of people. This is why it would certainly hurt when you need money and you file a loan application that you are so sure would be successful and at the end the application gets rejected.
Today, I have decided to highlight 10 main reasons why bankers reject loan applications so that the next time you want to apply for a bank loan, you would be able to avoid these pitfalls-:
10 Secret Reasons Banks Reject your Business Loan Application
1. Bad Credit History-: The bank is going to look at your credit history as one of the criteria for appraising your loan application.
If you have taken some loans in the past which you refused to pay back or defaulted in regular payments or maybe the bank even had to take you to court to get its funds back, then you may have a hard time convincing any other bank to lend you money. Your credit card repayments and utility bills are also appraised. If you have accumulated debts over some time, it may be used as an excuse to reject your loan application.
2. Insufficient income-: Your income is also appraised to determine if you would have enough money left to take care of yourself after making your monthly payments. If your income is too low or if you have too many debts that you are servicing at the same time, it is an indication that you may be unable to meet up with regular payments so the bank may decide to not approve your loan because of that.
3. Acting as a guarantor to a defaulter-: So you innocently guaranteed someone’s loan and at the end of the day, the person didn’t fulfill his obligations to the bank; as the guarantor, you would be required to pay back the debt and if you do not, you would be reported to relevant authorities and you would have earned a bad credit report for yourself at the end of the day and when you eventually try to apply for a loan, you may be rejected due to this.
Therefore, you have to exercise caution when acting as a guarantor for anyone. Ensure that the person is someone you can trust and someone who has the resources to repay the loan, otherwise, politely tells them that you are unable to cat as their guarantor.
4. Job instability-: This is a two way thing. First, if you have a history of changing jobs like a baby’s diaper, then the bank may tag you as unstable and refuse to approve your loan. Also, if your source of income is threatened, maybe because the company you are working for is financially weak and likely to go bankrupt, it might lead to a rejection of your loan application too.
5. History of too many rejections-: If other banks have rejected your loan applications before, a bank would want to know why and if it cannot really establish the reason and also establish that you have rectified the reason, it may also reject your application. So, if you receive a rejection from one bank, it is advisable to find out why and make the necessary adjustments and then apply again instead of hopping from one bank to another.
6. No collateral security-: Most banks would want you to have collateral security to guarantee your loan especially if you are applying for a large sum of money and if you cannot provide a sufficient one or cannot establish that the one you have provided truly belongs to you, your application may be rejected.
7. Applying with a defaulter-: You may have a clean credit record with no history of defaults but what about your co-applicant? If you are applying for a loan alongside someone else who has a bad credit history, it may affect your chances of getting your loan approved. Also, if you use someone with a bad credit history as a guarantor, your application may be affected.
8. Nature and size of business-: If you are applying for a business loan, the bank would also consider the nature and size of your business. First, it would ask for your business plan in a bid to understand and establish the viability of your business. It would also consider other factors like-:
- The industry-: If the industry is weak or going extinct, your application may be denied.
- The management team-: The experience and qualification of people who would be managing the fund is also very important.
- The company’s operation history-: How strong is the company? Has the company been able to grow overtime? This is very important too.
- Cash flow-: The Company’s projected cash flow would also help to establish that the company has enough financial resources to meet its financial obligations, including repayment of the loan in future.
9. Applying for much more money than you need-: It is important that you stick to your story when applying for loans. If you are applying for a loan to build a house for instance and your bill of quantity states that you need $200,000 to complete the house and in your loan application you requested for $400,000 which you cannot justify, your loan application may be rejected.
10. Pending legal actions-: If you have a pending law suit which may affect your source of income eventually, a bank might refrain from offering you a loan until the case is resolved or judgment is given. These are the top 10 reasons why bankers will reject your loan application.