Being rejected — whether for a program, a job, or even by a romantic partner — can be disheartening. A business loan is no different.
However, if you find yourself in this situation, we will be the first to tell you that you are not alone. It is extremely common to be rejected for traditional bank business loans. Banks reject about 80% of small and medium-sized businesses in Singapore.
It could be due to these five reasons.
Five reasons why your bank loan was refused
1. Damaged business credit score
A business credit score is an indicator of whether the business is a good candidate for lending money.
There are Many factors that can play a role in a bad credit score: legal documents, repayment histories, and many more.
Essentially, your business’s credit rating tells lenders whether you’re likely to repay your debts on time. So having a good business credit rating is key, and it can make or break your business loan application.
2. Damaged personal credit score
It will probably surprise many, but banks also take your credit score into account. Small businesses are often closely tied to their owners. Banks can look at your personal credit score to understand how your business will handle its financial obligations.
According to a Goldman Sachs survey, it was discovered that 70% of small business owners said their personal credit score played a key role in financing their business.
3. Insufficient background
A new business can be disadvantaged for two reasons.
First, companies may not have had enough time to build a good credit history, which brings us back to the first point. The second is that the business simply does not qualify for the loan.
Lending money is a risk, so banks want to be as protected as possible when doing so. Most banks have a stipulated requirement as to how long a business has been in operation before being eligible for loans.
ALSO READ: 4 key factors to keep in mind to secure your SME loan in Singapore
4. Lack of a concrete business plan
When considering a business loan, a lender would be interested in how you plan to make ends meet in the future. A good business plan is a document that shows the lender your vision. It outlines how you plan to grow your business, a cost and revenue projection, the strategies you plan to adopt, and more.
Not having a solid business plan reduces a lender’s confidence and can play a role in a denial.
5. Bad lender
With so many banks, there are bound to be plenty of options.
Almost every bank offers some form of business loan and there can be several key differences between two lenders. Maybe you might not be able to meet the eligibility criteria for one, but you can easily do for another.
So if you get rejected from one bank, don’t worry, there might be another one that’s right for you.
The five reasons mentioned above are among the most common reasons why a business loan may be refused.
To get a better idea of why your specific business was rejected, contact your lender and be sure to ask about the details of the rejection. More often than not, they’ll be happy to give you their reasons, so you can better understand your company’s shortcomings in the future.
If you haven’t been able to get a business loan, don’t lose hope. There are still many alternative avenues to explore.
Business credit cards
A traditional business loan may be out of the question right now, but you may be able to get some extra cash through a business credit card. Credit cards offer many savings and rewards. Plus, a well-managed business credit card can help you establish a good credit score and secure you a traditional bank loan in the future.
One credit card you can check out is the American Express Singapore Airlines Business Card, which offers massive savings on travel and business-related expenses. This card is particularly advantageous for SMEs doing business abroad.
Besides the card mentioned above, there are many other cards, so explore the different cards available for your business. You can find a full list here.
There are many other types of loans that do not come from traditional banks.
One particular type of loan worth checking out is crowdfunding loans. This gives businesses the ability to raise thousands or even millions of dollars in funds and also flexible loan repayment schedules.
Government guaranteed loans are also worth considering, especially with Singapore which has recently provided a lot of funding for startups and SMEs.
The table below lists some of our recommended loans, along with their pros and cons.
|Finance companies (FS bolt & Invoicing)||Ideal for large loans, inexpensive, Popular among SMEs||Can only borrow up to 12 months|
|Aspire SME loan||Fast, flexible application||Not the best for large loans|
|Crowdfunding platform FundedHere||Good for start-up startups||By invitation, not the best for immediate funding|
Check out a full review of some of the best small business loans here.
One option to always keep open is potentially re-applying for a traditional bank loan. It doesn’t have to be the same bank if you find another is better suited to your needs.
Once you’ve spoken to your lender and reviewed the specific reasons why your application was unsuccessful, you can take steps to improve and hopefully be successful next time.
Agreement and improving personal and business credit ratings could be helpful in this endeavor.
There are also many steps you can take to increase your chances of getting a bank loan. As the saying goes, if at first you don’t succeed, try again.
Overall, the reason your small business loan application might have been rejected comes down to bad credit, lack of business time, lack of a business plan, or something else. ‘as unlucky as approaching the wrong bank for you.
Nevertheless, there are many avenues for those who find themselves in this position.
Crowdfunding, approaching venture capitalists, taking out government-backed loans, and signing up for rewards-based credit cards are some of the ways you can bounce back and get the funding you need.
Ultimately, the only way to get financing to start your business is to never give up.
This article was first published in ValueChampion.