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6 Factors That Keep You from Getting a Business Loan
Posted on Wednesday, February 15th, 2023 | By IndusInd Bank
Whether starting a new enterprise or growing an existing one, you’ll need money to cover operational costs, hire staff, or resolve immediate cash flow issues. A business loan can come in handy for helping you meet these needs and grow your business.
Even though business loans have a lot of benefits, getting one approved is not always easy and you must be prepared for any potential challenges. Listed below are 6 common roadblocks to securing business loan approval and tips on how to overcome them.
1. Poor credit score
Getting a business loan with a low credit score could be difficult. A credit score of 750 or above reflects a good credit history, raising your chances of getting a business loan application approved. Lenders typically prefer applicants with a solid credit history. Such applicants frequently experience quicker approvals than individuals or businesses with less favourable credit histories. So, make sure to check and improve your credit score if you’re considering applying for a business loan.
2. Limited cash flow
A positive cash flow is an indication of a business’s health and consequent ability to repay debts and pay expenses. This is why cash flow is one of the first factors considered by lenders while assessing your business’s financial stability. A positive cash flow is also essential for keeping your business operational on a daily basis. Lenders will perceive you as particularly risky if your business has a limited cash flow, affecting your chances of getting finance. Therefore, it is crucial to assess your financial situation before submitting a business loan application online.
3. Lack of a business plan
Spontaneity is scarcely valued in the finance industry. It is not advisable to submit a loan application without or with a fuzzy business plan. A business plan is a formal explanation of your business objectives and the strategy you will be deploying to achieve those. It assists lenders in determining the feasibility of your growth strategy and potential profitability of your business model. You could boost your chances of obtaining a business loan by creating a strong business plan and sticking to it.
4. Multiple loan applications
You might be tempted to submit multiple business loan applications to various lenders all at once, believing this would allow you to choose the best offer. Quite the contrary, submitting a number of loan applications within a short span of time could invite multiple hard inquiries and make you seem credit-hungry, making it even more challenging to get a loan.
5. Missing documents
When applying for a business loan onlineor offline, you must submit all requisite paperwork, including your KYC documents, business plan, financial statements, income tax returns, ownership proof, and so on. Not having the necessary documentation could cause your application to get rejected. So make sure to carefully fill out the form, furnish all documentation, and review these before submission.
6. Not Heeding Expert advice
A business loan application requires extensive planning. The process can get tedious since errors could lower your chances of being approved. Consulting business advisors and professionals in the course of the loan process could help you with certain tasks, such as document preparation and drafting of the business plan.
Final Thoughts
Make sure to pay close attention to the aforementioned factors if you require funds to set up or grow a business. A thorough understanding of what to avoid when applying for a business loan is sure to help you obtain the funds you need to kick-start your entrepreneurial journey.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
