TIPS TO FOLLOW IF YOUR LOAN APPLICATION GETS REJECTED

Loans are one way of getting credit to purchase something new. One can increase their credit, reduce their financial burden, invest in business, and much more through a loan. However, getting a loan sanctioned by a lender is tricky business, which requires careful preparation. Even after being extra careful there are times when your loan application is rejected for different reasons. If your loan has just been rejected, you are probably wondering why. Well, there can be quite a few reasons for that. Take a look at the ones below to better understand the causes:

If your loan has just been rejected, you are probably wondering why. Well, there can be quite a few reasons for that. Take a look at the ones below to better understand the causes:

1. Incomplete application: In case you missed out on filling any important check-boxes while applying for a loan, then that might be the reason why your loan got rejected. So, don’t rush while filling out the application form. Try to fill up the form with all the important and complete details.

2. Bad credit score: If you have a poor history of credit card bill repayments or you failed to pay an EMI, then your name will be associated with bad loan repayment track records. This can seriously damage the chances of getting your loan application approved.

3. Existing debts: If you have too many debts to pay off as well as insufficient income, then also financial institutes can refuse to give you a new loan. This is because they will doubt your ability to pay back the borrowed amount on time.

4. Inefficient cash flow: If your income is not high enough to support the regular interest payments for the loan taken, then that can hamper your chances of loan approval. Financial Institutions usually want to make sure that you have enough cash inflow to support your business as well as pay back the loan.

5. New business: Are you new in the market or the industry? If the answer is YES then bankers might hesitate to give you the loan as they cannot judge your business by its history or past track records.

6. Lack of clarity: If you do not have a properly chalked out strategy or growth plan for your business, your loan application might get rejected. This is because lenders will take it as a sign of casual attitude. So, please be ready with a proper growth and estimated expansion plan.

In case you have been refused a loan, don’t be discouraged. Know that this is a part and parcel of the business world. Your first step should be to dig deeper into the root causes as to why your loan application got rejected. Once you identify them, you can plan your next moves accordingly. Consider the points below to tackle a loan-denial situation :

1. Immediate Strategies

Just after you get to know the reasons for the rejection of your loan application, you can plan the immediate strategies so that you don’t have to face the same challenges again. Here are few of the tips regarding that:

• Increase Down-payments: In some cases, you need to pay a certain amount as down-payment to get the loan. Try to increase that amount. It will act as an indirect form of (extra) incentive to the lenders to get the loan faster.

• Add Collaterals: This will help if you need the loan on an urgent basis. You can add the details of your collateral (assets) along with the loan application. That will act as the security in case you cannot pay the loan amount on time. This collateral will help you to get loans easily because this will pay off the debt you take, in case you fail to repay on time.

• Look for alternatives: Approval of a loan is often lender-dependent. Thus, it varies from one lender to another. In case you have been rejected by one lender, it does not necessarily mean that your borrowing requirements will not be fulfilled by other lenders. Don’t lose hope and instead do a good research on how many lenders are there to help you, and apply accordingly.

• Get a co-signer: A good and eligible co-signer for your loan can help you get an approval. The main purpose of such a person is to act as someone who will pay off the loan in case you cannot. A co-signer can be a family member or an outsider or a friend. An eligible co-signer with a strong credit score can be a plus.

2. Long Term Strategies: You should always plan ahead of your time and situation. You must be careful while planning the immediate goals, so that getting business loans in future becomes easy too. Some of the suggestions for the same are given below:

• Pay back existing debts: You should pay your existing EMIs on a regular basis without missing the due dates. Thus, when your existing debt burden goes away, you will become eligible for another business loan.

• Increase income: Nobody can deny a loan to a high income holder. So make sure you are able to fetch as much cash inflows as possible. Increase in income will make it easy to get quick loan approvals.

• Improve personal and professional credit score: Don’t let the credit records from the past play havoc again. Clear your dues on time. Make sure the credit records stay clean for you as well as your business. Both personal and professional records matter while getting a loan.

• Build financial standing: Be serious about increasing your earnings. It might sound cliché but that is one of the major factors for getting a loan. Your balance sheet and cash flow statement should look impressive along with the income statement.

• Demonstrate financial responsibility: Financial responsibility is the way you can manage the money and assets for your business to get the highest benefit out of it. Make sure you are well aware about the future goals of your business and state the same along with logic. This definitely will improve your chances of a loan approval.

So, now, you probably understand what went wrong with your loan application in the past and how you can better the situation in future. Understanding the root causes of rejection is vital as it can help you come up with new ideas to get a fast approval in the coming days.