Loan Refusal: 5 Loan Pitfalls To Avoid In 2022

When a business owner is trying to get sufficient finances to invest in their business, a loan refusal can be devastating. As such, there are pitfalls to avoid in order to get your desired loan for your business.

Access to investment options, as well as easily available funds, is ideal for business success. For a lot of small and medium businesses (SMEs), banks and other financial institutions are a steadfast source of business financing. It’s worth noting, though, that there’s an intentional shift away from traditional banks and toward financial technology platforms.

That’s correct. A new wave of lending platforms, other than banks, is sweeping the market.

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 is not guaranteed because it is dependent on a variety of circumstances. A loan application might be declined for a variety of reasons, and we’ll walk you through them so you can rule them out and improve your chances of getting approved.

What are the top 5 reasons why your loan application can be turned down?

The following are some of the most common reasons:

1. Poor Credit History

Do you have a credit history? What exactly does that imply? A credit history is a record of all previous loans taken out by an applicant. It also considers the manner in which the loan was repaid. A lender will now look at your credit history as one of the first things they do. Before issuing another loan, you must complete this activity to provide the lender with information on the number of loans you have.

This approach may appear unusual to some Nigerians, especially first-timers, who are unfamiliar with the strategy. It’s worth noting that your credit score has a big impact on whether or not your application is approved. When a loan is denied for no apparent reason, it is best to review your credit history to ensure that you have no defaulted loans.

Knowing your credit score before asking for a loan will tell you if you have bad credit or none at all. If this is the case, your loan application will almost certainly be declined since you pose too much of a danger.

2. Inadequate or limited collateral

Lenders such as banks and financial technology firms are rarely ready to take the risk of providing money to businesses without a guarantee of repayment. If you opt to take out a loan from a bank, they will almost certainly ask for a tangible property or an equivalent that they can keep if the loan is not repaid.

In this case, what should you do? Create a collateral document that contains a list of everything you can use as collateral. Because the former may not have the equipment to present as security, you can include both corporate and personal assets. After that, you might have to put your house or car up as collateral.

3. Over-Indebtedness Causes Loan Rejection

The salary, account balance, or statement of account of an applicant do not inevitably justify loan acceptance. Rejection or denial of a loan could be owing to the applicant’s outstanding debts. That’s correct: When an applicant has many loans open at the same time, a lender can tell. The lender is making a risk-management decision, and they may not be ready to take chances. It’s actually a no-no.

4. Low Earnings/Profits

Lending platforms, as we’ve already established, are in the business of making money through making loans. It’s likely that your application will reveal that your company doesn’t have the financial capacity to repay them.

An application may be denied as a result of this. This is not to suggest that you use fictitious proposals in your business. That is not something you should try.

The simple message is that if you request for loans that are too large for you or your firm, your application may be turned down.

5. A shaky business proposal or plan

If you provide a shallow company proposition to investors, they are unlikely to consider your loan application. Here’s a simple rule of thumb to ensure your loan gets approved when you submit it: Make your company plan as complete and explicit as possible. This gives the impression to potential investors that you have done your homework or that you are familiar with your target market. Furthermore, it displays that you have a well-defined mission statement with clear objectives in mind, as well as a calculated estimate of sales and profit expectations.

In addition to your plan, the study recommends that you prepare your resume, personal background, financial statements, bank statements, income tax returns, and legal documents such as articles of incorporation.


All of these factors might not be obvious to a candidate at the time of rejection because they were not expected criteria. However, if they are significant to lenders when deciding whether or not to give a loan, a borrower should take them into account before applying for one.

When applying for a loan, it is critical that you do your study. When asking for a loan through a site like Branch Loan, failure to provide accurate information about yourself can result in rejection. Keeping track of trends is also a good way to stay on top of recent changes.

If you learn that there may be issues at any point, you may choose to postpone your application until a later date. You can also look for alternative loan platforms.

Source: Nyscinfo

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