5 Reasons Your Small Business Loan Application Gets Rejected

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5 Reasons Your Small Business Loan Application Gets Rejected


A small business loan is a viable option that every company can take to face their financial circumstances. Whether to fund a startup, expand a business, or accommodate some financial needs, this can be your best solution. 

The good thing is that various lenders are willing to provide this type of loan. However, the problem is that not all loan applications for this get approved. In fact, statistics show that 40 per cent of Australian SMEs had applied for finance in the past, and about 23 per cent of these applications got rejected by their banks.

If you’re wondering why small business loan applications get denied, here are five apparent reasons to know about:

1. Incomplete paperwork

Unfortunately, some small businesses aren’t highly critical of the paperwork they’re submitting. They go on filling out the application form and securing the required documents without ever reviewing them. Below are some common mistakes made:

  • The use of the fund isn’t clear.
  • The financial records aren’t updated.
  • The business structure is unclear.
  • The company has a weak business plan.
  • The date of incorporation is missing.
  • The insurance information is incomplete.
  • The past tax returns are not detailed.

Keep in mind that lenders are highly critical of the details mentioned. This is why you must always double-check your application form and get it looked at by a loan expert.

2. Low credit standing

Remember that your credit score plays a crucial part in the approval of your loan application. As with any type of loan, lenders will look at the credit report to see the applicant’s capability to pay for the debt in the long run. 

As you may or may not be aware, your credit score reflects your creditworthiness. If you have a low score or a bad credit history due to delinquent payments, your lender will think twice about lending you the money. It’s best to check your credit report, evaluate your financial standing, and establish a good credit standing before submitting an application.

3. Insufficient income and weak financial projection

When submitting a loan application, your lender will assess your business income. They’ll calculate your ability to repay until the maturity date and grant the approval only if your business is financially capable. 

In this process, they’ll ask you to submit a financial projection of your business. If they see that it isn’t strong enough, they might reject your application. They’ll outrightly consider a denial if they see your company having low revenues, cash flow issues and other problems that can’t possibly be remedied by a loan.

4. Less than a year of business operation

It’s worth knowing that banks, financial institutions, and other lenders factor in a business’s years of operation for its loan approval. For the most part, they require a company to have operated for more than a year. If you have a startup, it will be best to wait until after a year before considering applying for a loan.

5. Having insufficient collateral

Most lenders require collateral for their secured loans. This essentially means that if you aren’t able to pay them in the future for a loan provided, they’ll get your valuable assets or other investments as a form of collateral. If you aren’t able to present any collateral during your loan application, your lender might reject your application.


At this point, you now know why a small business loan application gets denied, such as due to incomplete paperwork, low credit standing, weak financial projection, less than a year of business operation, and not enough collateral.

While your business may be in financial difficulty and need proper funding, be sure to consider the reasons for a decline before applying. You don’t want to waste your time, money, and effort in applying for a business loan only to get rejected later on. Ultimately, it’s best to work with an expert who can help you find the right loan from a highly considerate lender.

Are you looking to get a small business loan approved? You have come to the right place! Let our loan experts assist you, as we help companies find the right business loan in Melbourne to help them remain financially stable. Get in touch with us today to learn more about how we can help!

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