Common Mistakes While Applying For A Bank Loan – How to Avoid Them


There are many businesses that are adversely affected by the rejection of a bank loan. This rejection not only puts a damper on your plans, but it may also force you to go for expensive funding options.

An influx of capital through loan may be needed for

  • Acquiring an equipment or machinery.
  • For international trade
  • To complete a large order
  • To expand your business
  • To acquire a particular skill set by the acquisition of a business, etc.

Most of the times the reason behind the rejection of a loan is lack of info on bank loans and therefore there are few things that should be either avoided or kept in mind if you plan to apply for a loan.

Personal credit

The credit of the business owner plays an important part in the approval process. A poor personal credit record is bad for your business. The banks believe that if you are not careful in maintaining your own credit record than the business led by you will default as well. Your credit records consists of

  • Credit card payments
  • Mortgage payments
  • Personal bill payment

Capacity of loan repayment

You need to establish your repayment capacity. This can be established by

  • Documents showing your current and future revenues​
  • Through a collateral
  • A business plan, outlining the projected revenue that will be used for repayment.

You need to explain how the loan will be used in your proposed business plan.

Furnishing all the details

You need to provide all the documents along with the application form like

  • Income documents
  • Identity documents
  • Address documents both personal and official
  • Your contact details like the address for communication, contact numbers, etc.

Arranging additional security

If it is possible you should arrange additional security for the bank. You can apply jointly with a co-borrower or provide a guarantor. These provide the bank an additional repayment guarantee.

Loan amount

The amount you are applying for should not be more than your repaying capacity. Your repaying capacity is judged only on the basis of the documents that are attached. You can consult a loan expert to know your loan amount eligibility.

Your association with the bank

Your banking history with the bank is an important factor. If you are opening an account just before applying for a loan, it may reflect adversely on loan consideration. The longer you have banked with a particular bank the better your prospects of getting a loan. Your familiarity to the bank plays an important role in getting a loan.

Your prospect of getting a loan increases with proper planning. Your advance planning for a future loan requirement goes a long way in getting the loan approved.