Bank Loan Rejected: 8 Common Reasons

Hi, guys if you are searching on google about bank loan rejected then you are at the right place. One of the most intimidating steps in starting your own business is applying for a bank loan. It’s nerve-wracking because you know that if you get rejected, there’s not really another way to get funding.

While it’s definitely difficult to get approved for business financing, it’s not impossible! If you want to improve your chances of getting bank financing, try avoiding these common mistakes in your loan application. Your bank loan may be a little easier to get than you think! Read this article completely because in this article I will explain deeply the reasons why your bank loan rejected.

8Reasons That cause bank loan rejected:

There are many reasons that cause bank loan rejected. I will explain eight reasons:

Lack of Collateral:

    One of the most common reasons that your bank loan application gets rejected is because you don't have enough collateral to offer up as security for the loan. The bank wants to know that if you can't repay the loan, they can at least recoup their losses by selling off your collateral. So, if you don't have enough assets to serve as collateral, the bank is likely to reject your loan application.

A Poor Credit Rating:

      Second reason of your bank loan application gets rejected is because of your credit rating. A poor credit rating indicates to the bank that you're a high-risk borrower, which means they're less likely to approve your loan. There are a few things you can do to improve your credit rating, such as paying your bills on time and maintaining a good credit history.

Too Many Borrowers:

         Third reason of your bank loan application gets rejected is because there are too many borrowers on the loan. This is a red flag for banks, as they see it as a sign that you may not be able to repay the loan. To avoid this, make sure you have a solid business plan and can show how each person will be responsible for repaying the loan. Also, only take out one loan per borrower in order to keep the number low.

Bad Ratio between Income and Expenses:

          One of the most important factors that lenders look at when considering a loan is your debt-to-income ratio. This is a simple calculation: just take your monthly expenses and divide it by your monthly income. If this number is too high, it means you're living beyond your means and the lender will be less likely to approve your loan.
                                The problem with many people who are in this situation is that they may not even know they have bad ratios because they've never had to budget before. However, it's really easy to calculate what your debt-to-income ratio should be, so if you have any problems with yours, there are calculators online which can help you figure out how much more money you need in order to make the number work.

No Guarantor:

    Fifth reason of your bank loan application gets rejected is because you don't have a guarantor. A guarantor is someone who agrees to repay the loan if you can't. This shows the bank that you're serious about repaying the loan and that there's someone else who believes in your ability to do so.

Not Enough Money Saved Up:

       Sixth most common reason why people are rejected for bank loans is because they don't have enough money saved up. Lenders want to see that you have some skin in the game and are invested in the success of your business. If you don't have enough money saved, it may be worth reconsidering whether or not you're ready to start a business.

Bad Job History:

    One of the first things a lender will check is your employment history. If you have any gaps, or if you've been fired from previous jobs, that's going to reflect poorly on your loan application.

Your business is risky:

Being too big to fail is often thought of as an advantage, but when it comes to getting a bank loan, it can actually work against you. That’s because banks are required by law to take on certain risks, and if they feel like your business is too risky, they may reject your loan application.

For example, if you’re the CEO of a large company that has been in operation for decades with plenty of cash flow, that might not be seen as too big to fail the risk. But if you’re starting up a new small business with no history or collateral, your chances of getting a bank loan will be much lower.

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The rejection letter typically includes details about what sections need improvement before the lender will reconsider your application. so these are eight reasons that cause bank loan rejected.

If you found this article helpful for you then please share this article with your friends and family members also. Thanks for reading. I hope you got your answer on why my bank loan rejected.

2 Comments on “Bank Loan Rejected: 8 Common Reasons”

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