Ideally, business growth depends on access to investment opportunities and readily-available cash. For a number of small and medium-sized enterprises (SMEs), there is a persistent reliance on banks and other financial institutions for business loans. However, it is notable that there is a conscious shift away from traditional institutions and toward financial technology platforms.

That is correct. A new surge of non-bank lending platforms is sweeping the industry.

It is relatively simple to apply for a loan at any of Nigeria's commercial banks or other lending institutions.

However, the approval of your loan application may not be assured due to a number of variables. A loan application can be denied for a variety of reasons, and we will walk you through these so you can eliminate them and improve your odds of obtaining a loan.

What are the five most common causes for loan applications to be denied?

Some of the most common reasons include:

 1.Bad Credit History Leading to Loan Rejection

Credit rating? What even does that mean? The applicant's credit history is a record of all the loans they have taken out in the past. It also includes an examination of how the loan was repaid. Now, one of the most important things a lender does is check your credit history. Before issuing another loan, the lender can determine the number of loans you already have by completing this task.

A number of Nigerians may not be familiar with this strategy, particularly first-timers, so this idea may appear foreign. It is important to observe that your credit score has a substantial impact on your application's approval. When a loan application is denied without explanation, you should check your credit history to ensure that you do not have any defaulted loans.

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Knowing your credit score before applying for a loan will let you know if you have weak or no credit. If so, you can rest assured that your loan application will be denied due to your high risk profile.

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2. Limited or insufficient collateral

Typically, lenders such as banks or financial technology firms are unwilling to take the risk of lending money to businesses without some form of repayment. If you decide to borrow from a bank, they will likely request a tangible asset or an equivalent that they can seize if the loan is not repaid.

What should you do in view of this? You should create a document that includes a list of all potential collateral. You can include both business and personal assets as collateral, as the former may lack the necessary equipment. Consequently, you may be required to pledge your residence or vehicle as collateral.

3. Loan Rejection Due To Over-Indebtedness

The applicant's income, account balance, or bank statement do not inherently justify loan approval. Rejection or denial of a loan may occur if the applicant has outstanding loans. Yes, a lender is able to determine if an applicant has multiple loans active at the same time. This is a risk-management judgment for the lender, who may not take any chances. Actually, it is forbidden.

4. Low Income/Profits

As we have previously established, lending platforms are in the business of providing loans in order to generate a profit. Based on your application, it is possible to determine that your business lacks the ability to repay them. In light of this, a request may be denied. However, this is not meant to encourage the use of false proposals in your business. No, you should not attempt that.

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The simple message is that the proposition may be rejected if you request loans that are deemed too large for you or your business.

5.Flimsy Business Plan or Proposal

Your loan application will likely not be considered by investors if you present a weak business plan. Following is a straightforward guideline for ensuring the approval of your loan after submission: Do justice to your business plan's thoroughness and clarity. This demonstrates to potential investors that you have conducted research and understand your target market. In addition, it demonstrates that you have a well-defined mission statement with objectives in mind and includes sales and profit projections.

In addition to your business plan, the report recommended preparing your resume, personal history, financial statements, bank statements, income tax returns, and legal documents such as articles of incorporation.

Conclusion

All of these factors may not be apparent to a candidate at the time of rejection because they were not expected criteria. However, if they are significant to lenders in determining whether or not to issue a loan, a borrower should also consider them prior to loan application.

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When applying for a loan, it is essential to conduct adequate research. Inaccurate personal information on application platforms such as Branch Loan can also result in rejection. Monitoring trends is also advantageous because it keeps you apprised of recent developments.

If at any point you discover that there may be complications, you should delay your application until a later date. You may also search out alternative lending platforms.