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In: Accounting

What are the most common reasons the bank rejects small business loan applications?

What are the most common reasons the bank rejects small business loan applications?

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Expert Solution

The Common reasons for which bank rejects the small business loan applications:
1. Bad Credit or no credit scores - Credit scores is a measure of a person or business credit worthiness.
2. No Collateral Guarantee - Mostly banks requires collateral guarantee (physical property) against a loan. In case of lender is not able to repay its loan, bank sells the property against the repayment of loan. Mostly new companies have no assets that can be offered as collateral guarantee.
3. Inadequate Cash Flow - Before giving any loans, bank sees whether have enough money to pay the bank loan in time. Mostly new companies have not adequate cash flow, since thay have to make advance payment to their suppliers for products and services.
4. Lack of Papers required by Bank for sanctioning of Loan - Before applying for a loan the company should have a written business plan, projected financial statements, credit reports, etc. Mostly new companies have not all the papers and their loan applicatin has been rejected by bank.
5. Lending to small business is a risky.

ekkarill92 answered 1 year ago
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