5 Reasons Your Bank Loan Application May Be Denied

5 Reasons Your Bank Loan Application May Be Denied

An important and viable avenue for businesses to generate capital/funds is via bank loans. Today in Nigeria, the measures for granting loans have been tightened due to the recession. So, it is naturally difficult to get loans from banks if you are not a Dangote or Otedola.

This doesn’t mean banks don’t grant loans at all. You just need to satisfy their requirements. Besides this, there are other reasons why your bank loan application may be denied. Jumia Travel shares some of them.

You have too many debts

Banks will always scrutinize your books no matter how much you want as a loan. If you have too many debts, your loan application will definitely be rejected. This is because your debt profile will continue to rise and at the end, you will be unable to settle the debts.

Your Collateral can’t suffice

The collateral must be at par with the loan. In other words, in case you fail to pay back your loan, your collateral which may be a land or a house should be a perfect replacement when the bank eventually sells it off.

Irregular cash flow

If your cash flow is irregular, it is a recipe for loan rejection. Your business must have a steady amount it’s earning every month. This is to ensure the smooth running of the business as well as ensure that you repay the loan.

No watertight business plan

Your business plan is the key that opens the door for you to attract investors and ultimately get a bank loan. This is when your business is still at the idea stage. Your bank will no doubt ask for your business plan and if it is not detailed, it is likely to be rejected.

Your business is a startup

Even with the agitation for banks to support startups as well as small and medium scale enterprise, they will arguably not because it is a risk they are unwilling to take. This is because they are uncertain about the prosperity of the business. They prefer to grant to well-established businesses with solid corporate governance. If the bank agrees to grant the loan, the startup may be unable to meet the requirements. Alternatively, you can approach the Bank of Industry for a loan.

cleardot 5 Reasons Your Bank Loan Application May Be Denied
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There are 3 comments for this article
  1. Michael at 12:13 PM

    Nice one but I got questions.
    First, where can start-ups go to for loans if the banks wont help?
    Second, How will the banks assess ur debt profile if majority of ur debts are from friends and family, in other words, they are private debts?

    • Abdulkabir at 10:50 PM

      If your debts are from family and friends, it is unlikely that the banks would be able to assess them unless either you or your creditors make it obvious.

      As for getting loans as a startup, it is better to start with whatever little resources you have and can get from family and friends.

      After this, you can expose some of your ideas to potential investors without giving away critical information to unserious people.

      Banks may later grant you loans when they see a solid business plan and track record that is verifiable.

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