The disappointment and hurt you feel about being rejected for your SME Business Loan is understandable. It disrupts your plans and dreams to advance your company’s growth. It puts your operations on a back foot. However, having a business loan rejected is not the end of the world. Read further on the next course of action you should take.

1. Find the Reasons for Rejection

Do not hesitate to ask the financial institution why it denied giving you a business loan. There can be several reasons:

• Lack of proper documentation
• Low credit score
• Lack of collateral
• Inadequate cash flow
• A high amount of existing debt
• Lack of a feasible business plan
• Early-stage venture
• Risky business or industry
• Lack of clarity on the purpose of loan utilization
• Inability to meet any other eligibility criteria

2. Work on the Reasons

Once you know the business loan rejected causes, make conscious efforts to resolve it. For example:

• If you have poor creditworthiness, try to improve your CIBIL score by paying off existing debts, account receivables, and invoices.

• If the rejection is due to a risky industry or early-stage venture, prepare a business plan backed by in-depth research and financial projections.

• If you have insufficient cash flow, try to cut down the losses or operational costs.

Financial institutions look for strong business fundamentals for loan approval, and that’s where your focus should be.

3. Re-Apply for the Loan

Many financial institutions reconsider your loan application after you have met the parameters responsible for rejection. You can check with them if you can apply again.

You should also find new evaluation criteria, terms, and conditions that you may need to fulfill for a new application. If you fail, the institution will reject your loan again and put you on the blacklist.

4. Explore Alternative Financing Options

A rejected business loan doesn’t mean you won’t get funding from anywhere else. The loan criteria vary across different lenders. Hence, you can apply your loan to another bank or financial institution. 

A few other alternative financing options are:

Government Loan Schemes for SMEs

• MUDRA loans
• Stand-Up India
• Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGFMSE)
• National Small Industries Corporation Subsidy
• Credit Link Capital Subsidy Scheme for Technology Upgradation
• Udyogini

Angel Investors

Some individual or group investors and your friends or relatives might agree to invest their funds in your business. They may do it out of goodwill or in exchange for an equity stake in your business. They may also ask for a percentage of profits.

Crowdfunding

You can also pool money from the general public through crowdfunding platforms such as Fundable, Kickstarter, Ketto, Indiegogo, Wishberry, etc. It could be donation-based funding, equity funding, or debt-based funding. You can also promise exclusive benefits to the contributors.

However, the above-mentioned three options have a few drawbacks. The loan application process is usually time-consuming and requires elaborate paperwork for banks and government schemes. Angel investors may want to exit anytime. Crowdfunding may not be able to raise enough money.

Online Lending Platforms

Online lending platforms overcome the drawbacks associated with traditional financing options. They provide simple, hassle-free, and cost-effective loans to SMEs.

Indifi is one such reputed online non-banking financial institution. It has multiple verified lenders on the platform, increasing your chances of securing a loan. This means that there is less likelihood of rejection.

Some advantages of availing of a NBFC business loan from Indifi:

• Easy eligibility criteria
• Digital and minimal documentation
• Zero collateral (unsecured loans)
• Customized loans to fit your business needs
• Competitive interest rates
• Choice of loan tenure and repayment modes
• No hidden charges

You can apply for term loans, lines of credit, invoice discounting, merchant cash advances, and other business loans from Indifi. The approval happens within 24 hours of the fulfillment of application criteria, and disbursal takes as less as three days!

Conclusion

Before applying for a business loan, make sure you are familiar with the lending policies of financial institutions. Submit your application only after you have the proper documents, business plan, and good cash flow or capability to fulfill the loan conditions. This will minimize business loan rejections.

Also read: Top PPP Loan Alternatives – Stay Competitive with a Business Loan

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