Do’s and Don’ts to Avoid Business Loan Rejection

Running a business is a big challenge and at the same time, a very rewarding experience. When running a business, you are the owner/boss, and you get to do things your way. This, however, comes with the drawbacks of having to manage multiple tasks at the same time, travel to different locations in search of business and arrange to the required finance from time to time. 

Initially, an owner can arrange for the funding to get a business started, but after a certain period of the business’ life, the owner’s finance sources will, of course, dry up, forcing the owner to seek external/alternative sources of funding to keep the business afloat and not have it sink. 

Thanks to this, there are several various financing sources available on the market; however, take note, some of them require you to give up some ownership to gain the necessary funding required. This, depending upon the financial situation, may not be a good choice for an owner who has poured a portion of their life in the business to take it to the heights it has reached today. In cases like these, the best option an owner can go for would be to apply for a business loan through some of the many financial institutions working in the market. These financial institutions offer various types of MSME loans. 

About Business Loans and where to apply

Business loans are perhaps one of the (if not the) most popular sources of funding for business owners for them to meet a variety of different business-related financial requirements. There are a variety of different financial institutions in India which offer unsecured business loans to meet the needs of the business owner. As technology has advanced over the years, business owners now have access to Online Lending Companies as well. These online companies offer numerous advantages over regular financial institutions, making them the go-to choice for business owners in the country. 

With the help of technology, the process required to apply for an MSME loan through an online lending company is simple and easy to understand. It allows business owners to apply online through a website or mobile app, whichever one is convenient for them. If the owner’s profile meets the requirements, the entire process starting from the loan application to loan disbursal could be completed in a few days. 

But before applying for a business loan, there are a few points that should be kept in mind. 

  • Don’t ask for too little– asking for too much or too little are both bad moves when applying for a business loan. Although finding the right loan amount is a little trick, it is recommended to ask a little above the required loan amount as online lending companies often grant only half of the money requested to them. 
  • Learn about loan options– This is important as each lending company or financial institution will not have the same loan schemes. When applying for a business loan, it is important to read up on the loans offered and which one suits the owner’s needs best of all. 
  • Don’t pay off the loan too early- getting rid of debt is always a good move as it positively impacts a person’s credit score. However, paying off a loan too early still has a few drawbacks. There are some cases where financial institutions might fine a business owner for paying too early, as they risk losing valuable interest.

The do’s and don’ts when applying for a business loan

Thanks to a recent change of rules and procedures, financial institutions, both offline and online, have become very strict and follow a very stringent list of criteria when they are assessing a loan application. All it takes is a single red flag to reject the loan application. Hence, it is imperative to follow the do’s and don’ts provided below when preparing for a business loan application

Do’s Don’ts
1 Check the credit score

A business owner needs to check their credit score before applying. A score above 700 is ideal for many lenders when assessing an application

Applying with different lenders

It shows financial desperation on the side of the owner and can negatively impact the credit score.

2 Documentation

Any lender requires all the necessary financial, accounting and banking documents along with the application for a business loan. Lenders use these documents to assess an owner’s repayment capacity and the strength of their business

Delaying on repayments

Not making repayments to the business loan instalments is a sign of financial indiscipline and exposes the business owner to large penalties

3 Research around

Before finalising a lender for the business loan, it is important to research on the loan offer before proceeding with the application

Take the first offer provided

There are various lenders in the market, and it is important to research around before settling on a particular money lender. This is because the first offer provided to you might not always be the best one

4 Business plan

It is good to have a business plan stating how you intend to use the money, how it will boost profit, and how you can repay the amount through EMIs.

Borrow more than required

It is important to only borrow the required amount as a business owner will, of course, be paying a large interest on the amount. Therefore asking for too much is inviting needless expenditure on the business owner

5 Calculate the APR-

The Annual Percentage Rate is the total cost of a loan in a year. It should be a major parameter when a business owner is looking at different business loan products

Pay upfront fees

As there are many lenders in the market, there are almost double the number of scammers. These scammers ask owners to pay a large amount of money upfront. A genuine lender never asks for a large fee upfront and remembering this could help a business owner avoid a deadly trap

While managing your business finances, an invoice factoring company can provide a valuable service by advancing funds based on your outstanding invoices. This can improve cash flow and help meet short-term financial needs.

In the end, follow the steps mentioned above, remember the points written down and exercise some due diligence to get the maximum benefits out of the business loan.



Ajay Deep

Ajay Deep is a young enthusiast who Loves Chandigarh and is always eager to make this beautiful city even more beautiful. A Mechanical Engineer By Chance and Working in an IT MNC by Choice. A Writer, Photographer and a Budding Entrepreneur. A Designer, Developer and Digital Marketing Expert. In brief : A Jack of All Trades and Master of Few :) You may reach Ajay Deep at
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