Loan Rejection Blues: Common Reasons Why Loans for Small Business Startup in the Philippines Are Denied

Introduction

You've been planning your business startup for months and you've finally got the ball rolling. You've gathered all the information you need and you've even started to make a business plan. You're feeling good about things until you hear the bad news: your loan application has been rejected.

Rejection is never fun, but it's especially frustrating when it comes from something as important as a small business loan. So what do you do now?

Don't worry, we're here to help. In this article, we'll go over some of the most common reasons why loans for small businesses get disapproved, and we'll give you some tips on how to fix them.

Insufficient Financials

Loans for small business startups in the Philippines are often denied because of insufficient financials. This means that the business doesn't have enough cash flow to cover the monthly payments on the loan.

Usually, the minimum startup business should apply for loans is when they have been in operations for about 2-3 years. This ensures the SEC-Accredited Rating Agencies such as CreditBPO can assess the business financial rating score, which will then be used by banks and lenders for loan processing.

Most lenders look at two factors when considering a small business loan: the personal credit score of the owner and the debt-to-income ratio. If either of these numbers is too low, the business is likely to be rejected.

Another reason for rejection is if the business doesn't have any collateral to offer. Lenders are hesitant to give loans to businesses that don't have a solid plan or are at risk of failing. So, if your small business startup is still in its early stages, you may want to wait until you've established some stability before applying for a loan.

Poor Credit History

If your credit score is below the required level, or if you have no credit history at all, your loan application is likely to be rejected. This is because the lenders need to be sure that you're a low-risk investment, and poor credit scores are often seen as a sign that you're not reliable.

There are a few things you can do to raise your credit score and improve your chances of being approved for a loan:

- Pay your bills on time

- Keep your credit utilization ratio low (i.e. don't max out your credit cards)

- Don't open too many new accounts at once

- Have a Healthy mix of debt (e.g. Mortgages, car loans, etc.)

If you're a startup or a new business, you're likely to have a harder time getting approved for a loan. This is because the lenders see you as more of a risk, since there's no track record to go off of. However, there are still ways to get funding for your business - it may just take a bit more effort.

Poor Business Plan Quality

The most common reason for small businesses to get disapproved for a loan is actually because of the poor quality of their business plan. In the eyes of the lender, if the business owner can't seem to put together a decent plan, then they're likely not going to be able to stick to their goals and make repayments on time.

This is why it's so important to take your time in putting together a solid business plan. It should be well-researched, and it should outline your goals and strategies in detail. It should also include a realistic financial forecast that shows how you plan to make repayments on time. If you can present all of this to the lender, then there's a good chance your loan application will be approved.

Inability to Demonstrate Ability to Repay

When applying for a loan to start up your small business in the Philippines, lenders are going to be particularly cautious about approving you. After all, they need to feel that whatever plan you have can pay them back—and not leave them in a lurch.

This is why business credit is so important. It serves as a measurement of the likelihood that you can repay the loan. That's why your credit score (or lack thereof) may be a major reason for loan rejection. Even if your personal credit score isn't stellar, lenders may be willing to overlook it if you have adequate collateral and good business credit.

If your loan request gets turned down due to lack of credit history or insufficient business credit, there are ways that you can improve both factors. You may want to consider enlisting an experienced financial mentor or other advisor who can help guide you in building up these credentials—so that you can increase your chances of getting approved for your small business startup loan in the Philippines!

Lack of Collateral

You also might not be aware of this, but a lack of collateral is one of the most common reasons why loans for small business startups get rejected. You see, lenders want to make sure that they can easily recover their loan if it isn't repaid in full. And if you don't have any property or assets to serve as a guarantee for the loan, that's likely going to be a deal-breaker.

However, it's important to note that there are some lenders who are willing to take a chance on a business with little or no collateral. The key is in making a realistic assessment of the return the lender can expect from the loan and presenting an impressive and well thought-out business plan that outlines how you intend to use the funds.

Applying With the Wrong Lender

Another reason why your loan may have been declined is because you applied with the wrong lender. There are many lenders out there, and each one has its own specific set of criteria for approving small business loans. Some lenders are more prone to lend to certain types of businesses, while others specialize in specific industries.

So make sure you research potential lenders before you apply. Look into their qualifications, terms, rates, and other factors that will determine whether or not your loan application will be accepted. You want to make sure that the lender you’re applying with is a good fit for your business and its needs.

It is also important that you read the fine print before signing anything and make sure that you understand all the terms and conditions of the loan agreement. Asking questions if something doesn’t make sense is always a good idea – sometimes small details can have big implications down the line.

Conclusion

When you're denied a loan, it feels like the world is ending. You're not alone in this feeling—many small business owners have been denied loans, and it can be for a variety of reasons.

Some reasons are more common than others, and some are more easily fixed than others. Don't let a loan rejection keep you from achieving your business goals. Talk to a loan officer and find out why your loan was denied, and then start brainstorming ways to fix the issue.

With a little perseverance and a lot of hard work, you'll be able to get your business off the ground, regardless of whether you have the funding or not.