Facing Rejection For A Small Business Loan? Here Are The Top Causes

By Author: Shreya Kapoor
Total Articles: 1
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There are over 6.3 crores Micro, Small and Medium Enterprises (MSMEs) in India that contribute around 30 per cent to the nation’s GDP. Needless to say, it is a highly competitive space and to keep pace, the businesses are in need of consistent funds.

A business loan is a viable option in this case but there are instances when small businesses face rejections owing to one or the other parameter not being met. If you are wondering how I can get a small business loan, this article explores the possible reasons for small business loans getting declined that you should take a note of.

Reasons Why a Small Business Loan in India can get Rejected

Here’s how to get a small business loan without any obstructions by analysing at a few factors in your application.

Cash Flow Problems
If the business is not able to maintain consistency in funds moving in and out of the company, lenders are unsure and dubious about its capability to save and repay the loan after deducting the operating expenses.

High Debt
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... A business that is reeling under debt is bound to repel potential lenders. It questions the reliability of the business in terms of repaying the loan back which is the foremost concern of any financial institution.

Poor Credit Score
A credit score is like a report card and a good score is reflective of a business’s proficiency in effectively managing its funds. A score that is lower than 750 indicates a lack of financial prudence and planning.

New Enterprise
Financial institutions usually demand a business vintage of at least 2 years which helps check past records and performance. For lenders, it is a risk to sanction a loan to an organization without a business history.

Lack of Clarity
A business should be transparent and truthful about its objectives behind availing a loan. Whether it is for expansion, day-to-day operations, equipment, raw materials, etc has to be clearly mentioned. An obscure plan only makes it difficult to secure a loan.

Lack of Business Plan
A detailed business plan is among the most important documents while applying for a loan. It covers in detail the current numbers and future projections, market opportunities, revenue model, and everything else that offers a clear picture to the lenders. Not submitting a well-crafted plan can reduce the possibility of approval.

Incomplete Documentation
It is mandatory to furnish all the necessary business documents along with KYC, bank statements, tax returns and so on. Missing any of them or submitting incomplete information regarding the formalities can result in the business loan being rejected.

High-risk Category
Some businesses are risky in nature and can have higher chances of failure than others. Online gaming for instance is more susceptible to online or cyber-attacks. Such cases lead to heavy losses and eventually default on the loan owing to which lenders can reject the application.

Market Conditions

In case of a volatile market, a rise in inflation or similar such external factors that can weaken the lenders’ confidence may directly impact small business loans. Financial institutions are naturally sceptical and wary of uncertain times.

How can I Get a Small Business Loan Online from Paytm?

Paytm Business Loans offers its merchants loans up to 5 lakhs through an extremely easy and straightforward online process. Here’s a look at the steps to apply for a small business loan.

1. Select the ‘Business Loan’ icon on the home screen of your Paytm For Business app and check the loan options being offered to you.
Choose the loan amount, post which you will be able to see details such as the amount to be disbursed, total payable, daily instalment, tenure, etc.

2. After confirming the details, tick the check box and tap on ‘Get Started’ to proceed.

3. Next, fill in details like your PAN card, date of birth and e-mail address. and proceed with confirmation. After the PAN details are submitted your credit score will be checked & KYC details will be verified.

4. Once you have submitted the loan application, the amount is directly disbursed to your bank.

5. The loans are collateral free, with affordable interest rates and no foreclosure charges.