Last time when your business loan application was rejected, you wondered why? Did you get the answer?
Well, factors may be many, but the most critical one being your credit score!
When approaching for a loan, you need to ensure a high credit score.
Let’s hear a story!
When Navneet Joshi of Ghaziabad approached an NBFC for a business loan, he was denied. The company said his credit rating was not up to the mark for them to sanction him a loan.
Desperate for a loan to fund his small business, he approached another financial institution and faced rejection again.
After being rejected twice, he looked carefully into this score and what it dealt with. Navneet found that this score displayed his credit history which played a vital role in business loan approval for self-employed individuals.
He dwelled more and found that in America, an individual’s credit score accounts for his/her credibility and every financial institution turns sceptical about sanctioning a loan when the borrower possess a low credit score.
So, what did he do next?
Navneet went to CIBIL’s website and checked his score; it was less than 700. He realised that one needs to have a better score to get a loan. Confused, he searched for ways in which one could increase this score, and he came across many.
He started off by doing the following:
- Navneet stopped applying for credit
If an individual continually keeps applying for credit and gets rejected, his/her score drops considerably. Once rejected, the smart move to do will be to wait and improve the score.
- He paid all his instalments and EMIs in time.
Repaying all outstanding instalments and EMIs can increase the credit score exponentially.
- He stopped exceeding his credit limits
Navneet learnt that exceeding his credit card limits would mean that his score would go down. So, he stopped maxing out his credit card and kept it under the stipulated limits.
By following the steps mentioned above, Navneet improved his credit rating to more than 750! He approached Bajaj Finserv owing to their flexible tenors and easy eligibility criteria and received his business loan quickly.
Few other factors instrumental in getting the business term loan sanctioned are:
- Business experience
Other than the credit rating, another factor that plays a signifant role in loan approval – business experience.
Nancy D’cruze from New Delhi says that one should approach an NBFC for a loan only after gaining at least 3 years of experience. When Nancy went to for a loan with a financial institution, she had 4 years of backing which made the approval quicker.
- Individual credibility
Individual credibility constitutes an age between 22 and 55 years, other personal details, past financial history, and business expertise.
All of these come in your resume, which, if credible enough, can influence your loan approval process.
- Company’s tax liability
Gobind Narang of Bareli learnt that one needs to file income tax returns effectively for enabling them to receive a loan. He started filing them immediately and had all the relevant documents that financial institutions want to see when giving a loan.
Gobind got his loan sanctioned and now operates his bakery in Bareli with full glory!
- Audited yearly turnovers
Auditing yearly turnovers facilitate quick processing of business loans. The audited records showcase the income, expenses, profit and loss pertaining to the business.
With these records, your lenders will get to learn the details of your company and whether it can repay their loan in time.
Along with credit score, the other 4 major factors influence a loan approval. Get things right according to these eligibility criteria and get your business loan approved instantly!
Byron Simpson is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance cent.