Borrowing business finance is an excellent way to bring your business idea to life. However, getting your business loan application approved can be tricky. In fact, many first-time applicants face rejection on their loan application the first time due to multiple reasons.

But the question is – What should you do after the lender denies your application? Read this article to find out.

Let’s begin by understanding what can cause a lender to reject a business finance application.

Reasons for loan application rejection

#1 Poor business plan

A concrete business plan is critical to get the lender’s approval on your loan application, especially if you are starting your business. On the other hand, the lack of a robust business plan is a sure-shot way to get your loan application rejected. Ensure that the plan outlines your business’s vision statement, SWOT analysis, competitors’ analysis, industry background, business environment analysis, market analysis, operational plans, funding’s purpose, etc.

#2 Low credit score

 Maintaining a good credit score, preferably over 700, is vital for loan approval. And if you possess a low CIBIL score, you’ll be perceived as a high-risk borrower by the lender. Here, they can charge you a higher interest rate or deny your loan application.

Additional Read: Step by Step Business Loan Application Process Explained

#3 Lack of documentation

Most lenders request a set of documents during the application, including identity proof, income proof, address proof, and more. You must submit all the correct documents and fill out the necessary paperwork along with your business loan application form. Remember, incomplete or incorrect documentation can lead to unnecessary delays or rejection.

#4 Weak cash flow

Without a decent cash flow, there are high chances of your loan application getting rejected. This is because a weak cash flow indicates a lack of repayment capability after tending to operational expenses.

What should you do when your loan application is denied?

#1 Improve your CIBIL score

A good credit score directly reflects your creditworthiness and debt servicing potential. Not only does it increase your loan eligibility, but it can also fetch you attractive business loan interest rates. Here are some ways to boost your credit rating:

  • Maintain a timely payment cycle for business credit card bills, accounts receivable, and invoices
  • Limit your new loan applications
  • Check your CIBIL report regularly for discrepancies

#2 Pay off any outstanding debts

Lenders often take note of the loans you’re actively servicing. So, pay off your outstanding debt to increase your repayment capacity.

#3 Improve your tax strategy

As you know, tax exemption can help reduce your financial burden and improve your operational cash flow. Hence, hiring a professional to review your tax strategy is an excellent way to increase your repaying capability. This way, you’ll become a more desirable business loan candidate.

Additional Read: Tips to Improve Your Business Loan Application

Your turn

A loan application rejection can be challenging, but it’s not the end of the road for your business goals. Follow the tips mentioned above and apply for the loan again.

Lastly, if you seek a reliable lender for your business loan, apply online with Tata Capital. Enjoy multi-purpose finance options at competitive terms today!

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