Are you planning to, or have you recently started a small or medium-sized enterprise to become financially independent? You may have a brilliant business idea and a strong client base already in place, but generating the money required to establish or expand your business can be tricky. That is where MSME loans come in to help.
Banks and financial institutions across the country support the growth of small and medium enterprises through attractive credit plans. Regardless of the lender you choose, these loans involve filling out a lengthy application form and compiling extensive documentation. Moreover, even after you have submitted your MSME loan application, the lender analyses numerous details to determine your eligibility for the loan.
Here are some factors that, if ignored, can result in the rejection of your MSME loan application.
1. Low Credit Score
Before approving an MSME loan, every lender looks at the applicant’s previous budget and expense management record. A credit score is a way of grading of your debt management skill, and therefore reflects your budget management efficiency. A good credit score almost always guarantees a positive impact on your application, whereas low credit scores most commonly account for rejection.
2. Negative Cash Flow
Before approving your request for SME working capital, most lenders ask for details regarding your business’ previous profit and recent cash flow. If your expenses exceed your income, negative cash flow is generated. Such companies usually suffer long term losses and are not desirable for MSME loans.
3. Unpaid Debts
If your application for an SME loan indicates that you have accumulated too much debt from various lenders, it can be rejected. No lender would risk giving an SME business loan to a company that is unable to source enough funds to settle previous debts, let alone a new one. If you want to avoid rejection, ensure that most of your past debts are paid or close to settling.
4. Lack of Documentation
Most SME term loan applications require documents related to various aspects of your business. You might also have to furnish personal documents or those of your partners. It can be challenging to keep track of every single document required, but if you fail to provide them, your lender might reject your SME loan application.
5. Incomplete Business Plan
A robust business plan is one of the most critical factors for an SME loan. If your plan does not reflect market projections, profit predictions, and a solid expenditure account, your loan application can be outright rejected.
Before filling out your loan application, resolve all of the mistakes mentioned above. If you are looking for easy and hassle-free MSME loans, approach Tata Capital. Our business loans for small and medium enterprises come with an online application facility, attractive interest rates starting at 19%, a flexible repayment schedule, and responsive customer service. Learn more about the eligibility and documentation details on our website, or use our online resources such as our blogs and EMI calculator.