- August 19, 2020
- Posted by: avantconsulting
- Categories: Recommended Reads, SME Loans
Top 10 Reasons Why Your Business Loan Application Was Rejected – The Singapore government has created a friendly business environment to help Small and Medium Enterprises (SMEs) thrive. As economies are being hit by the COVID-19 pandemic, the government has cooperated with various banks and financial institutions to better provide financial aid to businesses. Schemes such as the Temporary Bridging Loan Programme (TBLP) serves to help businesses ride through this gloomy economic situation. The TBLP Programme offers up to $5 million in loans and up to a tenure of 5 years for Singapore SMEs.
On top of the TBLP, there is also the Enhanced Working Capital Loan to further support businesses. If TBLP is not sufficient, you can apply for it on top of the TBLP. Under this scheme, the loan quantum is set at $1 million and there is no cap for interest rate.
Under these schemes, the government provides 90% risk-sharing. Many businesses attempt to take up these loans to ease their cash flows or meet their capital needs. However, many SMEs did not qualify for these financial schemes and here are the top common reasons why banks and financial institutions rejected your business loan application.
- Poor credit score
A healthy credit record is essential when it comes to loan application. Directors personal credit records serve as a signal to lenders the likelihood of default payments and capacity to repay the loan. This is important because directors of the SMEs are required to be guarantors for business loans.
Behaviours that attribute to poor credit records can include late payment of bills and owing too much money.
If you do have small amounts of money that you are owing that is affecting your credit buraue score, we will strongly recommend that you work on paying this small amounts off first so that you can build up your CBS score for the long term.
- Low / Insufficient revenue in the latest financial year
It is not expected for businesses to be doing well in 2020 but it is expected for businesses to be performing well in the last financial year, that is 2019. This again signals to lenders the profitability of the business when economies recover from this pandemic and businesses resume to operate as usual.
Some banks do have the minimum revenue figure for loans to be disbursed, so if you are looking to go ahead with getting loans in the future, try to get your business revenue higher to stand out more when it comes to a bank loan application.
- Newly incorporated business
From the first 2 factors, we see how financial history is very crucial when it comes to taking loans. If a company is newly incorporated, especially for less than a year, it would be considered too young to be stable. There will also be a lack of financial materials such as financial reports or bank statements for lenders to make sound analysis.
There are certain banks that are welcoming to such applications if other supporting factors are strong, but it is not widely advertise, Avant Consulting knows which are the banks that you could approach if you need such help.
- Over leveraged / Many existing loans
When a company has too many existing business loans, it leads lenders to question if the company can service the loan installments. Banks and financial institutions exercise great caution when it comes to lending as they would prefer to minimize their risks when approving loan applications.
This is also a common issue even for non corporate loans where certain individuals are over geared and therefore presents a risk when it comes to repayment.
For those that are over leveraged, you might want to consider repaying some of your loans before proceeding to take more loans.
Most banks will try to avoid those who have taken multiple loans and therefore will not view your case favorably.
- At least 30% local shareholding
If the directors of the company are mostly non-Singaporeans, it is unlikely for banks to approve of your loan application. Therefore, it is important to ensure that at least 30% of your shareholders are Singaporeans. Otherwise, your company will not be eligible for the loan.
For the loans that are supported by the government due to Covid-19 it is a strict rule because the government want to support local companies to support the local economy.
- Multiple bounced cheques
Bounced cheques occur when the cheque cannot be processed by the banks because the account holder does not have sufficient funds available for use to fulfill the payment amount. There should not be more than 2 bounced cheques in a 6 months window. When a company has too many bounced cheques, it could indicate cash flow problems within the company.
- Industry of the business
The nature of the company’s business matters as well.
It is not explicitly stated but some banks restrict lending to certain industries.
Short term restrictions may be imposed on certain industries that are of higher volatility. Especially right now in the state of a bad economic situation, banks that are over exposed on a certain industry might hold back on giving loans to those that are new to the bank from this industries.
Unfortunately, the list of industries avoided by banks is not explicitly disclosed to the public.
It is kept for internal purposes so there is almost no way for you to research on this.
- Directors’ Balance To Income (BTI) Ratio
As mentioned earlier, directors of the company are required to be guarantors for business loans. Hence, the BTI ratio of directors will be taken into assessment. What is the rule for BTI ratio? It basically states that an individual cannot borrow more than 12 times their monthly salary income. A high BTI ratio reflects on the directors negatively and thus lowers the chances of you securing a business loan.
- Incomplete / Invalid Documents
A loan application can be pretty tedious, especially when it comes to gathering all the relevant documents. There are many supporting documents required and that includes relevant financial and bank statements, directors’ Notice of Assessment (NOA) and Credit Bureau Singapore (CBS) Report, and ACRA business profile information. Having a complete set of documents may not be enough. The documents have to be valid as well. All documents should be up to date, for instance, the latest 2 years of the company’s financial statements and the latest 6 months of bank statements.
- Insufficient collateral
If you do not have sufficient or the right type of collateral, chances are you are less likely to acquire a loan. This is because valuable assets, especially properties, can be used as security to back the loan. Hence, if you are stuck in this situation, you can consider looking for unsecured loans instead.
For business or guarantors that do have assets on hand, the likelihood of getting a good loan will be increased.
On the other hand, those that do lack assets will find that their applications might come up tougher.
After all, the reasons stated above are non-exhaustive. This are the Top 10 Reasons Why Your Business Loan Application Was Rejected. More often than not, applicants do not realize what went wrong with their applications and why are they rejected by the banks. Knowing some reasons why you may fail is important and following that, you need to correct the relevant aspects of your application to improve your borrowing position.
Avant Consulting specializes in providing advisory services for clients who wish to take up loans. Do not be confuse our services with lenders – we are not the ones lending you money. Instead, we assist you in your loan application so as to maximize your likelihood of securing a business loan.
Thank you for reading our article on “Reasons Why Your Business Loan Application Was Rejected”.
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