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Thursday , 18 October 2018
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The Next 5 Steps to Take after You’ve Been Denied a Small Business Loan

As a business owner, being denied a business loan can be discouraging. A loan denial can put your present and future business goals off track. However, the good news is that you can use this denial as a learning curve to know where you have gone wrong and rectify your mistakes in your next application. Here are the five things you should do after being denied a small business loan:

  1. Find out the reason for denial

The first thing to do after being refused a small business loan is to find the reason(s) for it. Errors in the application form, incomplete documentation, poor credit score, not enough business vintage, lack of a concrete business plan, etc., are some of the reasons that can lead to a loan rejection.

Knowing the exact reason of denial from your lender is of paramount importance as it might bring to light any hidden issues related to your business that you are unaware of.

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  1. Check your credit score from all four bureaus

In India, there are four credit information bureaus namely:

  • CIBIL
  • Equifax
  • Experian
  • CRIF High Mark

All the bureaus use proprietary algorithms to calculate credit score and hence, it may vary across bureaus. It may happen that your lender uses the score provided by bureau B, while you have the score from bureau A. If you find a major difference in the scores, it’s essential to take a note of this, check your credit report and inform the concerned bureau in case of an anomaly.

As per RBI guidelines, you can check your credit score and report from all the bureaus for free once in a year. In case of a poor score, fix the errors to set it right.

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  1. Examine other business fundamentals

While credit score plays a key role in the loan application process, you must check other essential business fundamentals post denial. Check your cash flow and annual revenues among others to find ways to further strengthen them.

While your business plans may take a backseat following a rejection, improving these fundamentals reap dividends in the long run. This financial standing exercise will help you better analyse where you might have missed the bus.

  1. Look out for alternative lenders

Thanks to the evolution of non-banking financial companies (NBFCs), the lending landscape of India has undergone a massive change. Relaxed lending norms coupled with minimal documentation and quick disbursal of funds has made NBFCs the go-getters for business loans.

New-age loans offered by some of the leading NBFCs in the country like Bajaj Finserv come with a flexi loan facility where you withdraw funds from your approved loan limit as per your needs. Also, you are charged interest only on the amount utilised and not on the entire limit thereby lowering your EMIs.

Don’t panic and start applying for business loans from financial institutions if your loan is denied. Take your time and revisit your financial situation before making the next application.

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