We understand how discouraging it is to be for a small business loan application to get rejected. No one wants to apply for funding only to hear “No!” – but it happens to many SMEs, so don’t get disheartened.
You may have a terrific business idea and a loyal customer base but raising funds to start or grow your company can be a bit difficult. If you are planning to grow your business in Chennai, MSME loan from a reputed NBFC can help you.
But it’s also crucial to remember that your business loan application was turned down for a reason and figuring out why should be your top priority.
Let us have a look at some common reasons for rejection and how to tackle them:
1. Credit score
Creditworthiness is determined by a person’s or a company’s credit score. Financial institutions consider both personal and company credit ratings. Yes, you read that correctly. Even if your company has been in operation for a long time, your credit score is considered when applying for MSME financing. A low credit score may be caused by defaulting on payments, delayed payment, a court decision, or even a lack of credit history.
If you’ve been turned down because of a poor credit score, check it and take action to improve it.
2. Incomplete documentation
Incomplete applications are another reason why financial institutions reject MSME loan applications. This may come as a surprise to many, but it is unfortunately very common. Many people become perplexed by the complicated financing applications and the seemingly endless list of necessary supporting documents. Everything needs to be documented, from business plans, tax reports, and bank statements to accounting statements, legal records, and more.
You should apply for business loans in Chennai from reputed NBFCs like Kinara Capital. They have a quick and transparent process. The requirement for documentation is minimal, and they provide assistance in your regional language as well.
3. Unpaid debts
If your company has too many existing loans with other banks and NBFCs, it could lead to your SME loan application being rejected. To be prudent in credit lending, all banks will exercise caution not to leverage a business with excessive borrowing. Different NBFCs have different caps on what they consider excessive borrowings and whether a particular company is over-geared in loan liabilities.
Check the specifications regarding the borrowings before you apply for a business loan in Chennai. That way you will reduce the chances of your loan being rejected.
4. Poor cash flow
Financial institutions will also look at the cash flows of your business. This will help figure out whether you have enough cash flow to cover your business expenses and pay off your debt. For instance, if the company is investing more money than earning, it will raise red flags. Also, when a small company becomes successful, maintaining a healthy cash flow is a massive challenge. This is because they will have to pay third-party vendors in advance before receiving payment for their services. Make sure you have a solid cash management strategy in place with timely invoicing, diligent payment collection, imposition of late fees, and so on.
The way forward
Since bank loans are largely being absorbed by larger organisations, many Non-Banking Financial Companies (NBFCs) have begun to support smaller businesses, making it easier to obtain an MSME loan. Borrowing money from a bank usually entails a lot of paperwork and a lengthy loan process, which can take a long time. NBFCs, on the other hand, allow for easy disbursement of funds due to their minimal documentation requirements. As a result, you won’t have to go through any lengthy loan application processes or screening procedures, and you’ll be able to get funds sooner. Moreover, in comparison to banks, NBFCs have competitive interest rates on SME loans. So, your EMI payments will be reduced, alleviating some of your financial worries.