A man acting curious and surprised after his small business loan application is rejected.

Know the Top Reasons Why Your Small Business Loan Was Rejected

9 min

After applying for the loan, you must be waiting for the feedback!!

Of course, you want it to get approved!!

But, what if you receive a letter, saying “we regret to inform you” or answering the call to know “We are sorry, your SME loan application is rejected”.

Definitely, it breaks your heart!! Now, what will you do?  

While it is a position where you do not want yourself into, also, it is not the end of the world. So, it is important to know why your small business loan Singapore is rejected that is what could be the reasons for rejection of loan application.

As per the Link flow Capital’s 2019 SME finance survey, there are approximately 70% small medium enterprises who are not eligible for financing the loan. Anyways, to know how and why your loan application is rejected, first of all, find out the reasons for the denial. Some best credit moneylenders might be particular but some might not share the details. However, according to the law, the banks must notify you about the reasons for loan rejection (the medium could be any).

So, if you are one of those who have experienced it lately, then, do not feel discouraged. This has happened to many leading business owners as well (more than once). To give you some relief of sigh, we are here, giving you some of the actual reasons behind the denial of small business loans.

Why is the small business loan Singapore is getting rejected?

Low Credit Score

The credit score is the demographic numbers that every leading moneylender includes in the process of loan approval. It shows how much you are financially sound and the risks of approving the loan.  

Basically, the credit score shows the likelihood of paying off the debt and the possibility of defaulting on paying responsibilities. It is an association to the numbers. In Singapore, it is also termed as Credit Grade. 

The higher the score (up to 2000) and the better the grade (AA rating), the higher your credit score. The lower your score, the worse their record will be, which will make you a “high risk” customer. This will prevent financial institutions in Singapore from providing you with a small business loan. To make the picture more clear, below we have illustrated a table that shows the range of the credit score and the possibility of defaulting.

Score Range Risk Grade Probability of Default
    Minimum Maximum
1911-2000 AA 0.00% 0.27%
1844-1910 BB 0.27% 0.67%
1825-1843 CC 0.67% 0.88%
1813-1824 DD 0.88% 1.03%
1782-1812 EE 1.03% 1.58%
1755-1781 FF 1.58% 2.28%
1724-1754 GG 2.28% 3.46%
1000-1723 HH 3.46% 100.00%

Bad credit history

This occurs when you failed to pay on time and results in huge outstanding debts or you can have more credit utilization ratio. Contacting many lenders even can draw you the bad credit history.

Also, who is the only owner of their company, the personal credit history matters for you as well. This can be overlooked by the well-established business and the substantial collateral.

Do not get disheartened, the credit history can be improved. Settle your credit score by having a business credit card and get some big, quick purchases and do pay on time. 

If you don’t want to make mistakes when contacting too many lenders, then a loan broker can ensure that your credit score remains the same by contacting only agreed lenders.

Business is relatively new

If your business is new then, you have not created much business credit history to get the approval of the small business loan Singapore. Always remember that the vendors do not report the payments to the business credit companies automatically. While creating the account with the new vendor or supplier, assure that they are reporting the payments. It will help you to set up a good credit history.

Certainly, it is possible to have solid finances and a successful business, even when you are not operating since long.  All you have to do is approach the right moneylender.  You may find other lenders that take much time in business as compared to others. Hence, check out the options when choosing where you apply for the business credit.

Asked for “Not Enough” or “Too Much Money”

The banks or the moneylenders analyze your debt service ratio to know if you have enough cash flow to pay off the loan. For calculating the ratio, check the annual net operating income and then, divide it with the annual debt payment. Better are the higher numbers.  

That is to say, approximately 15 for a Small Business Administration (SBA) loan are guaranteed. The moneylenders here need a greater ratio. If you apply the next time, then, run your expected loan amount with the online loan calculator to ensure that your loan amount will not exceed the limit.  The other side of the coin says that the same efforts will be provided to the larger loan as on the smaller ones, besides, they make more money.

If in any case, you are stressing out to get the loan amount more than you require, then, check out the other sources of financing, like, SBA microloan, angel investors, or crowdfunding.

No Business Plan

Drafting a business plan fully explains if your company is a big investment or not. It is one of the main tools used by the best credit moneylender to estimate business loan applications.

If you could not get the money when you applied for the loan last time, take some time to sort it out now. With an addition to the description of the business and its structure, the service or product, the marketing and sales plan, you are required to present the following:

  • The market report
  • Financial projections according to the cash flow and the income statements, budgets and balance sheets
  • An index with documentation with the application

Applying for a small business loan is not an easy task, however, it is better than letting cash flow problems stop the company from growing.  By increasing the line of fast loan credit, the asked loan amount remains realistic, and the lender is provided with a business plan that enables you and your company to achieve the best possible state. It will improve your chances of obtaining the required funds, thereby enabling your business to enter the next level.

Insufficient Collateral

Lenders favour those borrowers who have skin in the game. The assets offered up as collateral, which the borrower would forfeit if they defaulted on their loan. Before reapplying for the financing, arrange all your personal documents, personal assets, and accounts receivable. 

Then, decide whom you will be choosing to get the private personal loan Singapore. When reviewing the list, consider the possibility of default and the consequences if you have to confiscate your assets.

Does not hold the strong evidence of great cash flow

Cash flow is one of the prime considerations for private money lenders while deciding whether to approve a small business loan or not. They like to know that you have adequate cash to not only run your business expenses but also to pay off the loan; there is still a buffer.

If your cash flow is uneven, or you often experience seasonal declines, it may be a red flag for you. Insufficient cash flow is the main reason for business failure, therefore if this is the reason why your loan application was declined, then, you may need to check your cash management skills. 

With the accounting software, you can easily generate cash flow reports and forecasts. And, watch the cash flow weekly to maintain the highest level. Show some efforts to collect payments due from customers- don’t delay invoices to 60, 90 or 120 days overdue.

Incomplete paperwork/application

Regrettably, the common causes for a small business loan application being rejected are that the candidate did not fill out the application form accurately or did not give the required backup information.

We cannot criticise you if this is the reason behind the rejection of loan approval. Most of the businesses spare more than 20 to 30 hours on the loan application.

In addition to other documents, the moneylenders can also demand you for the business plan, business bank account statements, financial projections/ statement,, the business and personal credit reports are also needed.

Also, they can ask you for the legal documents of the business, like, leases, contracts, permits, licenses and corporate documents.

Chose the wrong loan and the wrong moneylender

The last mistake you might have done is that you have applied for the wrong loan and to the wrong lender.  Hence, you did not get an idea of the exact guidelines, the pros and the cons, and the required paperwork.

This is a grey area, you can get assistance from the experienced loan broker. A good person will interact with you, know your requirements and suggest the best type of loan based on your requirements.

Before approaching the loan broker or the moneylender, access yourself first.  Find out if there is any red flag in the application,  debts, credit history, etc. It is best to execute this complicated process smoothly with the guidance of a trusted money lender without letting your loan application be rejected.

Unstable Employment

If you are changing the job frequently, particularly, when you are in the middle of the loan approval, then, it might be the warning sign to the loan officer. The job changes might wrongly show that you lack the constant income to pay the loans and you can lose the job anytime.

However, it is worth noting that even if you are self-employed, or you change jobs but stay in the same field, it will not affect your chances of approving the loan. Your hard work will not be discredited

Wrapping Up

Experiencing rejections for the small business loan gives the worst feelings. But, as it is not personal, hence, you can try your hand again. 

Being rejected by a private personal loan when financing is needed should not happen. However, after you have overcome your initial frustration, this may be a learning experience and prepare you for your next success. 

We hope you liked this article. If there are some queries or suggestions then, let us know in the comment section below.

Thanks for reading!!


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