Climate change has become a concern across the globe, and several individuals are finding various strategies to fight against it. One of them is creating a green or eco-friendly business. If you are interested in starting one, then this is the right time.
However, starting a green business can be difficult, given the expenses involved in purchasing costly materials. One of the practical ways to meet such expenses is to avail a business loan. Nowadays, online business loan has made loan applications far easier. However, you must avoid some mistakes that usually lead to the rejection of your business loan application.
What Are the 8 Reasons That Cause Rejection of a Business Loan Application?
Listed below are the 8 causes that lead to rejection of a business loan while applying for it to start a green business:
1. Failure to meet eligibility parameters
A lender will not issue a business loan based simply on your noble goal of creating an eco-friendly company. You must prove that your company is financially and environmentally sustainable. Additionally, note that not every financial institution has similar eligibility parameters. These may be relaxed for some and stringent for others.
Therefore, whenever you approach a lending institution of your preference, check its eligibility criteria beforehand. This is an essential step to see whether you qualify for a business loan or not.
2. Poor credit score or absence of credit history
A financial institution assesses the credit score and history of your business before issuing a business loan. Your business’s credit score and history are crucial parameters because they indicate your financial ability to repay the loan on time. If your business’s credit score and history are poor, a financial institution may reject your offline or online business loan application.
3. Multiple loan applications
Applying for too many loans at a time is not ideal as it showcases you as credit-hungry. Furthermore, it also negatively affects your credit score, and as mentioned earlier, poor credit scores lead to the rejection of a business loan application.
4. High debt utilisation ratio
A financial institution also checks your debt utilisation ratio. If it finds that you have used most of your credit, it may assume that you are overspending and facing difficulty in managing your finances. This may lead to the rejection of business loan applications. Ideally, you should keep your debt utilisation ratio within 30%.
5. Incorrect or incomplete details
Errors or incomplete details in a business loan application form can cause rejection of your application. Moreover, if you fail to provide correct business loan documents, a lender will not be able to process your request for a loan application and, thus, reject it. Therefore, you must carefully check the information in a business loan application form and documents before submitting them to avoid rejection.
6. Insufficient business revenue
Suppose your eco-friendly business fails to produce sufficient revenue, and you apply for a business loan with such inadequate revenue. In that case, the lender will reject your application. This is because insufficient business revenue indicates that you may find it challenging to make timely payments of your business loan EMIs.
7. Absence of business track record
You may lack sufficient or have zero track records if you have just started your business. The business track record summarises your business’s financial history. Therefore, the absence of such documentation often makes a lender hesitate to extend a business loan. This ultimately leads to the rejection of your application.
8. Lack of collateral
Selected lenders may ask you to mortgage tangible security as collateral to borrow a business loan. Failure to mortgage such tangible assets may lead to rejection of a business loan application.
Therefore, you must have a clear idea about the inventory of assets that you can utilise as collateral before applying for an offline or online business loan. Moreover, if you cannot provide any tangible assets, you may need to mortgage your personal possessions to acquire the required funds.
However, if you wish to borrow an unsecured business loan, compare its interest rates, associated terms and conditions, etc., on leading online marketplaces like Bajaj MARKETS. A thorough comparison will help you to make an informed choice.
To conclude, a business loan will help you to start or expand your existing eco-friendly business. So, if you are keen to apply for the same, keep all these abovementioned reasons in mind to avoid rejection in an offline or online business loan application.