It can be a nightmarish situation for business owners when a small business loan application is rejected.
If this has just happened to you, you may be feeling very defeated right now. Keep your spirits up! Many thriving business owners experience it, often more than once. The very first step to submitting a good funding application in the future is to comprehend the causes.
Here are the most common reasons your business loan might be rejected.
Bad credit score
If the lender determines that your credit score is “too low,” this is among the most frequent causes of loan refusal. The magic score varies based on the lender and circumstance. Even if your firm has been around for a long, a business loan cantake your personal credit rating into account.
A bad credit score can sometimes make your business not reliable for an investment or loan even if you have a good cashflow record.
If your application was denied due to a poor credit score, check your score & take corrective action. Refreshing your knowledge of the factors that affect both your personal and corporate credit scores is a brilliant idea so that you can comprehend how you’re being assessed.
You’re not alone if you built a great business while sacrificing your personal credit.
Small business life
If your company is still young, you might not have enough credit history to be approved for a small business loan. Keep in mind that not all vendors immediately report your purchases to corporate credit agencies. Ensure your transactions are reported whenever you open an account with a new provider or another vendor so your company can establish a solid credit history.
Of all, even if you’ve only been in operation for a short while, you can still have a highly profitable business and strong finances.
You just need to locate the perfect lender for your circumstances. When choosing where to apply for business loans, consider your options, as some lenders have significantly longer company requirements than others.
Not having a solid business plan
A business plan is frequently one of the crucial elements of the application procedure.
Try to consider the lender’s point of view when preparing or modifying your business plan again for the application. They’ll want to comprehend your company’s business strategy, strategies, and thorough plan for distributing the funds. When determining whether to lend to you, lenders must consider the risk, and the level of preparedness can make a huge difference.
An unprepared business plan may make a lender think twice about approving your application if it lacks the necessary information or data. Spend some time drafting a thorough business strategy to improve your chances of being accepted.
Being in a risky industry
Traditional lenders just view some industries as “risky.” Due to their high failure rate, eateries are an excellent example. You could encounter additional challenges when applying for a loan if your company deals with certain “vice” industries, like gambling. If this is the reason you were turned down, look into lenders who focus on your sector.
Insufficient proof of a healthy cash flow
One of the initial considerations for lenders when determining whether to grant a small-business loan is cash flow. They would like to know that you have the sufficient cash flow to pay for your business expenses, repay the loan, and leave yourself with some extra income.
It can be a warning sign if your cash flow is inconsistent or you frequently endure seasonal slumps.
You might need to consider your cash handling abilities if your application was denied because of poor cash flow. Poor cash flow is a significant factor in business failure. Use accounting software that makes it simple to create cash flow estimates and reports and then check your cash flow once a week to remain on top of things.
Not having collateral
You typically need to put collateral to get a business loan from many traditional lenders in Nigeria. You can be declined if you lack sufficient collateral or the correct kind of collateral. If this describes you, look into unsecured loans as an alternate funding source.
With Lidya, you can apply for credit without providing any collateral.
Take the hassle and worry out of your loan application and get your hands on an instant small business loan from Lidya. All you need to submit is your bank statements, and you are good to go. There is no need for a business plan, any further paperwork, or even any collateral. And the best thing is that everything will be done digitally and on the same day.
Things to keep in mind when applying for a Lidya Loan,
- Have your last 3 months of transactions in hand.
- Have a positive balance on at least one bank account.
- Make sure your bank account has a single currency that is valid for the country.
One of the worst sensations ever is being turned down for financing. But remember that you can try again, and it’s not personal. However, once you get beyond the initial annoyance, it can be a teaching moment that helps you succeed the following time.
Are you tired of getting your loan application rejected ? Then it is time to get in touch with Lidya.
We offer the most seamless and fastest business loan in Nigeria to empower SME owners and take their businesses to the next level.