3 Reasons A Loan Application Is Rejected

Have you ever wondered why your loan application is sometimes rejected? This article is for business owners and start-ups who want to improve their chances of receiving loans from financial institutions that provide funding.

Not having money may no longer stop you from starting that business that would provide a source of livelihood, provide an alternate source of income or just give you the independence you need to do other things in your life that a day job might not allow. This is because there are a lot of traditional banks, microfinance banks and micro lenders from which you, as a business owner, can access loans.

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In an ideal world, people who look for loans would be honest with strong moral character, paying back their loans on or before the due date. Unfortunately, in the real world, Lending institutions have had to deal with some dishonest people and businesses with poor financial management. In order to mitigate this, these institutions have come up with a process of screening businesses to ascertain the most credit worthy ones to work with.

Here are three reasons why your loan application is sometimes rejected.

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1. Weak Guarantors

Guarantors are people who promise to pay a borrower’s debt in the event that the borrower defaults on their loan. A person with social capital typifies an individual who is able to work with and live harmoniously with others in society. When a person is willing to stand surety for you, it shows that you have shown a great deal of trustworthiness. This is because what the guarantor is doing is practically putting their own assets on the line as collateral against the loan for you.

When you can’t find even one person to vouch for you, it raises a red flag for micro lenders and you might just be denied.

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2. Poor Statement Of Account

A statement of account gives a summary of your financial transactions; it typically shows your cash flow. It tells a story, basically, of your spending habits and the quality of your financial management. Microfinance banks want to know that when you say you’ll pay back your loan on the due date, you’ll keep to your word. When you are required to provide a statement of account and you hesitate or avoid providing one or the statement shows you’re in debt, it raises suspicion especially for some micro lending companies that do not demand collateral.

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3. Lack Of Collateral

Financial institutions that give out loans take collateral as security in the event a person or business defaults. This gives the creditors the assurance that they can get back their funds on the due date. You have to have a noteworthy security if not the bank will be unable to fund you as they cannot bank on your word alone.

These are a few of the most important things to take into consideration when planning to take a loan from creditors. If you meet these three requirements, getting that funding for your business would be a breeze.

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