rEJECTED LOAN
Why Loan Get Rejected?
Most of the people and the companies such as SME and Sdn Bhd do not realize why their loan application are rejected by the bank. The failed loan application results in your company unable to raise capital. Thus, the companies fail to expand your business or improve the efficiency of business operation. It is very critical to the SME who have insufficient capital to expand their business widely. If they always fail to apply for the loan, it may cause the business fail to expand in a fast manner. There are several reasons why your loan always get rejected by the bank.
Repayment Ability
The repayment ability of an individual or a company is one of the criteria that the banks will consider. If the company is unable to repay the loan in the future, the bank will definitely reject the loan due to high risk for this situation. Banks can determine its repayment ability based on the bank account and the overdraft account. They would observe the possible outcome of the repayment pattern in the future. If a company account and its overdraft account always have low amount of balance, it shows that the company may currently have financial difficulties in the business. Also, the bounced cheque record will also affect your application of the loan.
Reliance on the specific customer/supplier
If a company’s sales highly rely on a particular customer or supplier, it may become troublesome if the customer and supplier terminate the relationship with them. It results in the sales of the company dropping dramatically or they are unable to find the supplier to support the production line. For example, if your company’s sales constitutes 80% from Honda, when Honda stops buying your company products, your company’s 80% of sales are gone.
Choose the wrong type of loan
The wrong type of loan may become one of the reasons for the bank to reject your loan application. For example, your company wishes to purchase the machinery which may cost RM500,000, and your company applies for the working capital financing. It is a wrong type of loan which uses working capital financing commonly used in the daily operation activities or short-term expenses. The correct type of the loan for your company should be the hire purchase.
Poor Financial Position
Poor financial position means the company currently has a poor financial situation such as insufficient cash and high level of debt. The company’s sales which are lower than RM500,000 indicate the poor financial position of the company. It shows that the company has limited ability to expand their business to obtain higher sales. Also, if the company’s performance is bad in the previous year, it shows that the company is poorly managed and may continue operating at a loss in future. Debt-service ratio is one of the indicators for the bank to evaluate the total of all your monthly debt obligations. This became the most common rejection reason of the bank for loan application. If your company’s debt-service ratio is high, the bank will automatically ignore and reject your loan application.
No collateral
Most of the loan applications which have a high amount of loan, the bank will require the applicant to provide the collateral to reduce the risk faced by the bank. If your company does not have any assets that are suitable to become a collateral of the loan, It becomes more difficult for your loan application to be successful. Also, banks are reluctant to accept the machinery to become collateral due to the liquidity of the machinery being low, it is hard to sell them to the bank.
Apply to wrong bank
Different banks have different policies to deal with the loan applicant. Also, different banks have different preferences of the customer base that they are willing to approve. Some of the banks may prefer the public, some may prefer SME or business loans. The purpose of the loan application should apply to the appropriate bank to increase the successful rate of application. Furthermore, the debt-service ratio in that acceptable region is different for different banks. If your company has a higher debt-service ratio, you may apply for the bank who has a higher acceptable region.
New established company
A newly established company means they do not have any borrowing record. Therefore, the bank is unable to observe and determine whether the company has a good record in the repayment of loan. It may increase the chance that your application will be rejected by the bank. Only if the sole proprietorship changes to Sdn Bhd, and the director of the company is the same person, the record in the sole proprietorship can be used by the bank to determine the repayment ability of the company.
CCRIS/CTOS record
What are CCRIS and CTOS? CCRIS is a system that collects credit information on borrowers from participating financial institutions and sends the information back to them. CTOS is an evaluation of an individual credit history and capability to repay financial obligations. Borrowers should repay the loan installment on time to prevent any bad record in the CCRIS and CTOS. It will affect your loan application in the future. For the supplier payables, it should repay on time to prevent companies being included in the blacklist of CTOS. It requires time to eliminate or exclude from the blacklist which may affect your company’s reputation in a period of time.
Why AL Account Management？
Our founder is Chartered Accountant with the Malaysian Institute of Accountants (MIA), member of Association of Chartered Certified Accountants (ACCA) and Company Secretary in Malaysia. Our dedicated professional team provides a comprehensive and professional service to your company based on your needs. We will provide the high quality of service from our professional team. For more information, please contact us by dropping us an email at [email protected].
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