Common mistakes to avoid when applying for a Business Loan

Many people assume that poor credit scores are the only reason for business loan rejections. While this is certainly a significant factor, it is far from the only one. In fact, many reasons for rejection can be easily addressed and rectified.

In this article, we'll cover the common business loan mistakes along with tips for a successful business loan application.

1. Not Meeting the Eligibility Criteria

Failure to meet the lender's eligibility criteria will lead to application rejection. Before applying, ensure that you meet all the necessary conditions for your chosen lender. For instance, some of the requirements for a business loan from SMFG India Credit include a credit score of 750 or above and an enterprise that has been operating for at least 3 years.

Use tools such as a business loan eligibility calculator to get a better understanding of your qualifications.

2. Not Having Your Financial Records in Order

A crucial step in getting a business loan is submitting a complete application with accurate financial documentation. Lenders carefully review balance sheets, profit and loss statements, and tax returns during assessment. Poor organisation or outdated records can raise concerns and slow down or halt your approval. Keep your financial records up-to-date, well-organised, and accurate to avoid these issues.

3. Having a Low Credit Score

Your credit score is one of the most influential factors that lenders consider when assessing a business loan application. A low credit score indicates a higher risk for the lender and could result in rejection or higher interest rates. For business loans, a credit score lower than 750 may decrease your chances of approval, although the minimum threshold depends on lender policies.

Before you apply for a business loan, make sure that your credit score meets the lender's minimum requirements. Paying off existing debts, maintaining a credit utilisation ratio below 30%, and resolving any inaccuracies in your credit report can make a significant difference.

4. Missing or Inaccurate Documentation

Lenders require specific documentation to assess your identity, the business's financial standing, repayment capacity, and overall eligibility. Missing documents or submitting inaccurate information can lead to delays, additional paperwork requests, or outright rejection of your loan application.

To prevent this, read the lender's documentation requirements upfront and ensure all documents are updated and error-free.

5. Applying for Business Loans Frequently

While it may be tempting to apply to multiple lenders at once to increase your chances, this is one of the most common mistakes when applying for loans. Each time you apply, the lender conducts a hard inquiry on your credit report, which can reduce your score. Moreover, multiple applications give the impression that you are in dire need of funds, which can raise concerns about your business's financial stability.

It's better to focus on one lender at a time, ensuring you meet their specific requirements and prepare a strong application.

Conclusion

Multiple loan rejections can negatively impact your credit score, lowering your chances of securing future business loans. To ensure a smooth and quick business loan approval process, submit a complete application with all required documents and avoid the common mistakes outlined above.

If you're seeking financial support for your business, SMFG India Credit provides unsecured business loans of up to INR 75 lakhs*. The eligibility criteria are straightforward, and our interest rates are competitive. Apply online or visit your nearest branch for more information.