If you have applied for a business loan and it was rejected don’t worry, there are some steps you can take to increase the chances of approval the next time you apply for it.
Let’s find out why your loan application was rejected and then have a look at the actions you need to take.
Low Credit Score
The most common reason for loan rejection is a low credit score.
Banks check the personal credit score of business owners while evaluating the loan applications.
Personal Credit Score is a factor to check for a small business loan or startups or even for a company that has been in business for a long period of time.
The logic behind this is, if you can’t manage your personal credit, how reliable will you be in paying back a business loan?
Lenders also check business credit accounts and potential defaults.
Way to resolve
If the reason for loan rejection is low credit score then repair and review your credit score by paying bills on time, reducing outstanding debts and have a clean repayment record. If you have any credit cards or personal loans in UAE, then make payments on time.
Avoid elements that affect your credit scores such as bankruptcy, delinquency, delay in repayment of debt and other factors.
Low Business performance
If a business is operating in low revenue and the operating cash flow statements show there is no money for day-to-day operations then the business is not in a position to make repayment of loans.
Cash flow problems are persistent in business but if the business operates on these red lines of low cash flow then the lender may not approve your business loan.
Way to resolve
If you are in an already established business or you are running a business that is relatively new, to build up enough credit history and to easily qualify for a business loan you should request vendors to report payments to business credit agencies.
Usually, vendors do not report your payments to credit agencies automatically. Whenever you deal with new vendors/suppliers make sure they report all your payments to credit agencies so that your business can build up a good credit score.
Too much Debt
When you apply for a loan, lenders consider your monthly debt obligations if it looks like you can’t afford to pay your monthly debts your business loan will not be approved.
Lenders also consider the credit utilization ratio. Lenders always want you to use not more than 30 percent of the total available credit.
If you use maximum credit on your available limits you are considered as a high-risk applicant. A higher credit utilization means a higher risk that could also get your loan rejected.
On the other hand, if you lack history of handling credit payments responsibly and don’t have any debt even that can turn against you to reject your business loan.
Way to resolve
Making payments responsibly and keeping a track of total credit limits including personal credit cards, business credit cards, lines of credit and other credit sources.
Having a habit of responsible debt usage will help you to build a good credit score over a period of time.
Not enough time in business
You may not qualify for a business loan if your business is new, as there would not be any credit history.
Some lending institutions would require you to be in business for a year or three years for approving loans.
Way to resolve
Finding the right lender for your business situation will possibly make to have a successful business. Some lenders require more time in business than others.
So when deciding where to apply for a business loan look at all your available options and choose the best which suits your requirements.
Insufficient Collateral
A collateral is a business asset such as investment, retained income, property, vehicles and others.
Lenders require collateral security for issuing business loans. Insufficient collateral means your business loan gets rejected.
Way to resolve
If you do not have sufficient collateral, look for alternative sources of funding such as unsecured loans where you do not require any security to obtain a loan.
You did not ask for enough money
You may be surprised to know that sometimes banks reject loan because you did not apply for enough loan amount.
The reason for banks is that the cost of servicing a small loan amount is just not worth it. Major Banks do not approve small amounts of loans to businesses.
Way to resolve
How much is the loan amount that banks approve is the big question. The best practice is to review financial projections and your business plans to make sure that you are not underestimating the loan amount that you need.
Look for an alternative finance source such as microlenders or apply for invoice based financing options to get small business loans.
Incomplete application
It looks silly but it is the most common reason for lenders to deny loan approvals if the applicant did not provide sufficient backup information or did not provide complete details in the application form.
Way to resolve
Banks ask for supporting documents such as three to five years of business plans, business bank account statements, personal tax returns, financial projections, business credit reports and other reports.
Banks also review business legal documents such as permits, leases, contracts and other business documents.
So get your paperwork done thoroughly before applying for the loan.
Lenders approve a business loan based on various parameters and loans may be rejected if any of these parameters are not met.
The best way to get your loan approved is to do research on your business and lenders then apply for a loan by meeting the eligibility criteria and you will get your business loan approved.
Click here to check Business Loans in UAE
Doing business in the UAE is an easy process according to World Bank’s standards and this is the reason the United Arab Emirates is ranked 16 among 190 countries in ease of doing business. So don’t hesitate to ask for a loan as we are here to help you out with the best options.
Give wings to your business dreams, get business loans from below listed popular banks in UAE.
- Dubai First SME Business Loan
- RAK Bank Commercial Real Estate Loan
- Noor Bank Business Finance
- Emirates Money Business Loan
- United Arab Bank Business Loan
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
