5 Common Reasons Your Loan Application May Be Rejected
It can be very devastating for a business owner to experience declining loans while trying to secure enough funds to invest in the business.
Ideally, business success thrives on access to investment opportunities and readily available cash. Many small and medium enterprises (SMEs) are stubbornly dependent on banks and other financial institutions for business credit. However, it is worth noting that there is a deliberate shift from traditional institutions to his FinTech platform.
That’s accurate. A new wave of lending platforms, aside from banks, is sweeping the market.
Applying for a loan from any of Nigeria’s commercial banks or other lending organizations is generally not difficult.
However, since there are a number of variables involved, your loan application may not necessarily be approved. We walk you through the possible causes of loan application denial so that you can rule them out and improve your chances of securing a loan.
Table of Contents
What are the top 5 Common Reasons Your Loan Application May Be Rejected?
Among the most popular explanations are:
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Bad credit history, first This results in loan rejection
Financial history? What does that even mean? An applicant’s credit history is a record of all the prior loans they have obtained. It also considers an examination of the loan’s repayment process. At this point, one of the first things a lender does is look at your credit history. Before providing another loan, the lender will need to know how many loans you currently have, thus doing this task gives them that information.Because many Nigerians, especially beginners, may not be familiar with the tactic, this idea could seem weird. It is important to understand that the credit score is a key factor in determining whether your application will be approved. If a loan application is turned down without explanation, it’s best to check your credit report to make sure you haven’t defaulted on any loans.
Knowing your credit score before asking for a loan will help you determine if you have good, bad, or no credit. If this is the case, you can be sure that your loan application will be turned down since you pose too great of a danger. More information regarding credit scores in Nigeria and what they truly comprise may be found here.
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2. Limited or insufficient collateral
Lenders like banks or financial technology firms are often unwilling to take a chance by providing money to businesses without receiving anything in return. If you choose to borrow money from a bank, they will almost certainly ask for a tangible asset or something comparable that they can keep if the loan is not repaid.
What ought you to do in this situation? All the collateral you can use should be listed in a collateral document. Due to the possibility that the former may not have the equipment to use as collateral, you might include both commercial and personal assets. You can then be required to put up your house or car as collateral.
3. Loan Rejection Due To Over-Indebtedness
Salary, account balance, or account statement information provided by a borrower might not always support loan approval. The applicant’s outstanding loans may be the cause of the loan application’s rejection or denial. You read that correctly: A lender can tell if a borrower has several loans open at once. Lenders may not be ready to take chances in this risk-management strategy. It’s actually improper.
4. Low Income/Profits
As we’ve already established, lending platforms are in the business of disbursing loans so that they can profit. Based on your application, it may be feasible to determine that your company doesn’t have the capability to pay them back. An application might be rejected in light of this. This, however, is not meant to promote the use of fictitious proposals for your company. You shouldn’t try that, I repeat.
The straightforward word is that your proposal can be rejected if you request for loans that are deemed to be excessive for you or your company.
5. Flimsy Business Plan or Proposal
If you provide a weak company proposal, investors are unlikely to take your loan application into account. Here is a straightforward rule of thumb to follow to guarantee your loan will be approved after submission: Do your company plan’s thoroughness and explicitness justice. This gives the impression to potential investors that you have done study or that you are familiar with your target market. Additionally, it shows that you have a well-defined mission statement with objectives in mind and includes a calculated projection of sales and profit.
In addition to your plan, the report advised that you also make sure your resume, personal background information, financial statements, bank statements, income tax reports, and legal documents like articles of incorporation are ready.
Conclusion
Because these were not the expected requirements, an applicant may not understand all of these explanations at the time of rejection. A borrower should take into account the lenders before asking for a loan, nevertheless, if they are significant to lenders in deciding whether or not to give a loan.
You must complete your research before asking for a loan. On websites like Branch Loan, failure to provide accurate information about yourself can result in application rejection. A further benefit to staying current with events is keeping an eye on trends.
You might as well wait to submit your application if you learn at any stage that there might be issues. You could also look for other financing platforms.
