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Reasons Why Your Business Loan was Rejected

7. Not Knowing the Purpose of Loan

Why do you need a loan? Is it for purchasing essential equipment, developing a new product, or renovating your office? If you are not sure of the purpose of your loan, lenders are less likely to process your application.

Additional Read : The 4 Types of Business Loans Explained

8. A Risky Venture

Dominant factors in the economy of a nation play a major role in influencing investor sentiments and decisions. For example, if you plan to invest in a transport business when the cost of fuel is rising, the same may not find much interest with the available investors.

Hence, you need to keep yourself abreast with the micro and macro-economic factors and political developments surrounding you and grab opportunities provided by them.

Business Loan Application Got Rejected? Here’s What You Can Do

Now that you are aware of the problem areas, lets figure out how to solve them quickly. Below are a few tips:

1) Improve your credit score: Your credit score gives a direct idea about debt servicing potential. Past debt records help lenders calculate the risk profile associated with your company. So, maintaining a timely payment cycle for accounts receivable, business credit card bills and invoices boost loan approval chances.

2) Pay off outstanding debts: Lenders check the amount of loan you have currently availed. Paying off other outstanding loan would not only improve your debt to income ratio but also increase your borrowing capability.

3) Improve your tax strategy:Tax exemption can help you reduce the tax burden associated and also increase your income. Hire a professional to ensure proper tax planning as lenders consider your tax return income as a measure of profitability.

Before reapplying, it is helpful to consider the lender’s perspective – are there any red flags in your credit history, and do you have sufficient income to repay the loan? Enquire about what matters and what doesn’t! Once you have all the relevant information at your disposal, you will be able to choose the right business loan product which is suitable for your business needs.

It’s common for a business to struggle to keep its head above the water when the economic scenario takes a dip. Note that a loan rejection though discouraging is not the final straw in the survival of a business.

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