The Top 5 Reasons Loans Get Rejected

1. Your repayment capacity - when you take a loan you have to be able to pay it back, of course. If you can't repay the loan, those are clearly grounds for rejection. So you need to check how much you earn monthly, account for your expenses, and then see if you can still pay back the loan. Ensure that your income is routed through your Bank account so that the lender can clearly verify it. If you are an individual, look at your salary and expenses. If you are applying as a business, check that your business is making profit, and see how your financial position is. Also, when you forecast the income and expenses of the future, make sure they are realistic based on industry averages and past experience.

2. Your existing or past credit facilities - when you take a loan from an institution, they need to see how likely you are to pay them back. To check this, they look at your credit history - how you have repaid any other loans or credit cards or other facilities. If you paid properly and on time, they'll know you are credit worthy. However, if you pay late and if you have defaulted on payments, they will consider you risky and credit unworthy. When it comes to businesses, this may also mean the personal credit facilities you or the other directors have, because after all you are the ones running the company.

3. Your equity - many loans require an equity portion to be invested by the borrowers. This lets the lender know that you have also invested in the project, and that you are therefore more likely to actually be using this for the said purpose and that you will try to make the project go well. So you have to make sure you meet the equity percentage they ask for, and you also have to make sure they can easily trace it. It's most advisable to use your accounts for these transactions, keep bills, and basically just be able to prove you have invested what you have invested, (Hot Tip: the equity you invested CANNOT be something you have borrowed from someone else)

4. Tax issues - if you are eligible to pay taxes, you have to pay it properly. Taxes are something you are legally required to pay the government and it helps pay for programs and services authorized by the government that we all benefit from. If there are issues with your tax compliance, this is another indicator to the lending institution that you are not transparent with your financials and that you may not be credit worthy.

5. Cheque Returns - cheque returns due to insufficient funds show cash flow management issues, and a bounced cheque is also something that you can legally be held responsible for by the receiver. Therefore, financial institutions will consider this as well.

Well, there you go. Now that you know the top 5 reasons loans get rejected, you can work on improving these areas for a successful application.