Business Loans: 4 Common Reasons They Can Be Rejected
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According to data from the Monetary Authority of Singapore, bank lending in Singapore grew 1.5% in June. This was largely due to stronger demands for business loans. However, the upward trend in lending doesn’t mean business loans in Singapore will have no rejections.
In this article, we’ll highlight some of the usual reasons banks or lending firms reject business loans, to help you avoid potential mistakes.
For many financial institutions, a person’s credit rating is a vital indicator of one’s creditworthiness. Having a high personal credit grade can provide you and your business more access to various working capital funding options.
On the other hand, having a poor credit score and a bad history of payment records will make your financing options a lot more limited and restricted. Some institutions may outright decline loan applications if the applicant’s credit rating is too low.
Due to the importance of credit rating to business loan applications, you must maintain a positive rating and ensure that all existing loans are paid on time.
Unfortunately for start-ups and new companies, a lot of financial and banking institutions prefer businesses that have operated for at least two to three years. This is probably due to the high failure rate of young businesses and startups.
Some institutions may be able to provide small financing options to businesses that have been operating for at least 6 to 12 months. However, these young businesses may be required to present solid cash flow projections and business plans to support their application.
If you currently have a young business or startup, it might be best to rely on your existing resources for now. When your business has matured, it can get the best loan possible from respected institutions.
The presence of adverse litigation is probably one of the most common reasons for business loan rejection. If you or the company currently have pending cases that have yet to be concluded, it will likely lower your chances of getting a loan.
Most financial institutions would probably avoid underwriting any loan applications unless all pending litigations are resolved. However, some types of litigations are exempted.
An example of this is road accident litigations that have not resulted in any deaths and the claims or costs are low enough to be covered by existing vehicle insurance.
If you or your company currently has active or pending litigations, it would be best to have them sorted out first before applying for any business loan.
For many financial and banking institutions, cash flow projections and revenue are essential factors to consider when approving business loans. By having a higher revenue and faster receivable days, your business will be able to pay monthly debt dues.
Most lenders require a business or startup to have at least S$300,000 worth of annual revenue to be eligible for a loan. The larger the revenue you’re producing, the easier it is to qualify for a business loan.
Applying for a business loan can be challenging, especially for young businesses looking to grow their company. Familiarising yourself with the common causes of loan rejection should help you prepare and increase your chances of getting a loan for your business.
Capital Funds Investments offers both secured and unsecured business loans that can help businesses get the financial boost they need.
If you’re interested in getting a business loan with us, feel free to contact us today. Our team will be happy to discuss your concerns or questions about our loan processes.