Business financing is a big challenge faced by small business owner nowadays. Below is top 4 reasons why SME loan was rejected by Banks.
1. Bad Credit Score (CCRIS & CTOS)
CCRIS plays an important role in a loan application process. Most of the banker will ask Director to sign the consent form for them to check CCRIS & CTOS first before collection of full documentation. CCRIS (Central Credit Reference Information System) is a system created by Bank Negara Malaysia (BNM) which synthesizes credit information about a company and individual into standardized credit reports. If a borrower has ben a due a payment for more than 3 months, the successful rate of getting a loan would be lower. Would like to know more what kind of info are included in CCRIS & CTOS report? Please check following link for sample report. CCRIS, CTOS Sample Report for Company, CTOS Sample Report for Company
2. Poor Bank Statement
The bank always wants to see your company bank statement in your loan application. Bank will review your bank statements for a primary reason; Understanding your business cash flow cycle. Bank would like to know your current cash flow whether is able to generate enough cash to repay the loan. From the bank statement, Bank also knows that where your money regularly goes and shows how your major cash expenditures relate to your major cash sources.
3. High Gearing
Gearing is the level of a company’s debt related to its equity capital. In Bank’s views, the higher the level of borrowing (gearing) the higher are the risks to a business. This is because payment of interest and repayment of a loan are not “optional” in the same way as dividends. For example, the total net worth/equity of a company is RM 1 million whereas their current debt is more than RM 5 million. So at this point, they may not have room for a new application unless the company increase their paid up capital.
4. Nature of Business
Not all the nature of business are welcomed by the bank to getting a loan. There are some unfavourable industry in banking lines such as restaurant, construction company, pub, furniture, liquor, tobacco and etc
