There are a number of reasons why business money loan applications from SMEs may get rejected after the initial credit evaluation process. While it’s hard to say what’s the business loan evaluation criteria used by the banks, the private money lenders are much more open/ transparent about the process. So, let’s deep dive into some of the reasons for loan rejection and find out how to address those.
Things for which loan applications get rejected
- A recently incorporated company: When it comes to approaching a money lender in Singapore, a past track record for a credit evaluation process is an absolute must. When a newly incorporated company approaches for loan, they end up not possessing proper or complete financial statements for a thorough analysis. In fact, according to a report, around 30% of all SMEs end up failing within the first 3 years of starting business, and this percentage shoots up to about 50% by the 5th year. So, when applying for a loan from a private organization, SMEs need to be functioning at least for about 1-3 years.
- Loss in the last financial year: Most SMEs aren’t expected to do well in the first few months of commencement of business. Yet, in order to qualify for a business loan, the SMEs are expected to have been profitable at least in the last financial year. This is a way for the financier to know whether they can trust the SME of remaining profitable or not.
- Low revenue in the last financial year: A money loan evaluation criteria typically includes a minimum revenue requirement, which keeps varying across different financial institutes. So, SMEs are expected to have a certain annual revenue in the last financial year, to be considered for a business loan. That said, some organizations are more lenient than others to serve a wider range of SME borrowers.
- Too many existing loans: An SME is considered overleveraged when it has too many debt repayment obligations, more so when those obligations exceed its ability to repay using its normal business proceeds. Even if the SME’s guarantors or directors are willing to repay the loan from their personal funds, it’s not considered prudent for the money lender in Singapore to continue piling debt onto the business.
- A restricted industry: Some financial institutions avoid lending to businesses that belong to certain industries. Why? Well, that’s because some industries have stringent evaluation criteria regardless of the state of the economy. In fact, some industries are considered just too volatile or high-risk such as oil & gas, real estate, and more. There is no way for you to find out in advance if the industry you operate in has been tagged high-risk, because such information isn’t made public, but when you approach private organizations for money loan, the relationship managers may help.
- No corporate account: In SMEs, where the operator of the business also happens to be the director or the owner of the company, they often end up using personal accounts for depositing or withdrawing business proceeds. While this seems more convenient, most financial institutions don’t accept personal accounts for credit evaluation as it gets hard to differentiate which transactions are personal and which are business-related.
- Multiple bounced cheques: As a general rule of thumb, there should not be more than 2 instances of bounced cheques in 6 months in the company’s bank statement. While instances such as penning the wrong recipient or address may trigger a bounced cheque, recurring bounced cheques indicate a company’s repayment behaviour or even poor cash flow management.
- Bad personal credit records: SMEs which have directors with bad personal credit records are almost always adversely affected. This is because when an SME approaches a money lender in Singapore, directors turn guarantors for the business loans. So, a history of late payments, negotiated settlements, and bankruptcy, makes financial institutions apprehensive.
- High BTI ratio: Under BTI or Balance to Income rules, the details of which you’d find here), individuals are not allowed to borrow more than 12 times their monthly income! The rule was introduced by MAS to lower people’s indebtedness. Sure it does not affect any SME’s loan application directly, but the directors can be negatively assessed, as they turn guarantors for the loan. So, directors will exceed the BTI ratio if they have more unsecured interest-bearing debts than their annual income.
Key Takeaway
There’s not a single reason as to why a business loan application may get rejected, and while banks maintain a greater degree of ambiguity and secrecy, a licensed monelyender in Singapore would be much more open regarding their evaluation criterias. Among the myriad reasons why such a loan application may get rejected, some of the prime reasons are the business’s profitability and revenue generation capabilities, the age of the business, lack of a corporate account, a low credit score, existing loans, etc. The evaluation parameters vary greatly from lender to lender, and Quick Loan maintains a clear evaluation procedure. If you are looking for a business loan, you can get one at favourable terms from us.
For a SME, a business loan forms an extremely part of the ecosystem, as newer enterprises are often cash-strapped, and their avenues of raising the requisite amount of capital is pretty limited as they do not possess the might of the bigger corporations or highly-valued startups that can decide to go public when they want to raise additional funds for their operations or expansions. In such a situation, a loan from a licensed moneylender in Singapore can prove to be the air that they need in their sails to conquer the open operations. They must be aware of the aforementioned reasons, so that they can plan out their finances accordingly, thereby enjoying a seamless borrowing experience.
Looking to approach a money lender in Singapore for a business loan? We’ve got your back! At Quick Loan, no business is too big or too small for us. Over the years, we’ve successfully simplified the process of borrowing money or taking loans. Connect with us for loans on low-interest rates, instant approvals (in under 30 minutes), and custom loans for your varying needs.
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