Why your business loan request was rejected

Your business is unregistered
Since most business people regard this process as a way of letting the government know that you are now earning money, they do not think it is really necessary. However, lenders will check out your business before parting with their money. They wouldn’t want to risk their cash on a business that is not legally registered.

Business people should take advantage of the readily available Huduma services or centres to process their business registration. Among the documents you require to legitimise your business include:

• Know Your Customer (KYC) documents
• KRA PINs for the company and yours, or partners if any
• Acceptable collateral and preferably a six-month bank statement

You have poor credit history
Credit history is your responsible repayment of debts. It is an account of previous loan information about how you have been making your repayments.

Lenders view this information (both your personal and business credit history) simply because they need a guarantee that they are entering into a clean deal.

The Credit Reference Bureau (CRB) is in charge of credit rating in this country. However, different financial institutions have different tolerance levels and hence require different credit scores. If you do not meet the required scores of your financier, it becomes very difficult to secure a loan for your business.

One way of improving your credit score is ensuring you have paid all your loans, and on time. According to the CRB regulations, a record is usually kept in the database for five years from the last day of payment. Although some financiers emphasize positive scores, being negatively listed in the CRB records should not deter you from getting a loan.

Another way of improving your CRB status is by borrowing more. Longstanding credit accounts that are paid in full and on time have a positive effect on your status. A positive status is an indication that you always pay your loans on time.

Your bookkeeping skills need refining
Research indicates that most small businesses in the country fail before their third anniversary. Therefore, most financiers require the history of your business, just to be sure of your stability. This history involves your business paperwork.

You may require your KYC documents and well-balanced records of your business in order to secure a business loan.

If intending to get that loan, you should ensure you keep healthy records of sales, management reports, and summaries of accounts payables and receivables.

You lack collateral
Collateral is something paid as security of a loan, in this case, a business loan.

In the event that a business is small and does not have assets to offer as collateral, you as the entrepreneur can offer a personal guarantee or pledge your personal credit on behalf of your company. This will make you responsible for the loan.

There are two types of loans: secured and unsecured. In most cases, businesses apply for secured loans, where they place collateral as security.

Your cash flow is inconsistent
Simply put, this is when you get money from your clients and in turn pay your business bills. The rate at which your business is paying its bills should be the same as that at which it is receiving money from customers.

Businesses should also have a keen eye on their recurrent expenditure, which includes salaries, electricity, or water bills. These expenditures should be paid whether the business gets money from clients or not.

Businesses require positive cash flows in order to secure financial loans because the main inquiry of a lender is whether your daily earnings will be able to pay back the loan.

To improve your cash flow, consider setting timelines when invoices are expected to be paid. You should bear in mind that the longer a client takes to pay, the more likely you will not receive full payment.