A bank rejection does not always mean the financing requirement has to stop there.
Different banks have different credit policies, lending appetites and industry restrictions. But before approaching another lender, the business should first understand whether the issue is specific to that bank or whether there is a broader concern with the company’s financial position.
Why do banks reject business loan applications?
There is no single reason for a rejection.
In many cases, the concern comes down to the company’s financial position or repayment ability.
Common areas that can affect a bank’s decision include:
- Weak or declining financial performance
- Existing repayment patterns
- High existing liabilities
- Weak month-end bank balances
- Insufficient cash flow to support the requested facility
- Industry or company-vintage restrictions
- Credit profile
- The quantum requested
Banks generally do not disclose their internal credit assessment in detail, so the exact reason may not always be known.
What matters is assessing the overall profile before deciding what to do next.
Should you apply to another bank?
It depends on the case.
If the business is suitable for another lender’s credit criteria, approaching another bank may make sense.
For example, different banks can have different requirements around company vintage, industry, financial performance, existing facilities and financing quantum.
However, if the underlying financial position is the main issue, simply sending the same application to another bank may not solve the problem.
That is why we assess the business before deciding where the next application should go.
What if the bank approved less than you needed?
A low approval is different from a full rejection.
Suppose the company requires S$500,000 but the bank is only comfortable with S$200,000.
The next question is whether the remaining requirement can be addressed through another suitable bank or financing facility.
Depending on the profile, the overall funding requirement may be structured across different facilities or lenders.
The objective is to look at the total financing requirement, rather than stopping at the first bank’s approval.
What if the banks cannot take the case?
If the business has already been rejected by suitable banks and the underlying issue makes traditional bank financing difficult, we can look at other financing routes.
This may include financial institutions or alternative business funders.
These facilities can sometimes take cases that banks are unable to accommodate, but the cost of financing is generally higher.
That means the decision should be made carefully based on the company’s funding requirement, repayment ability and how the financing will be used.
Alternative financing should not simply be viewed as another way to borrow.
It should make commercial sense for the business.
What we do after a rejection
At Cornerstone Capital Services, we look at the case before deciding what the next step should be.
We assess the company’s financial position, existing financing, amount required and purpose of funding.
From there, we determine whether it makes sense to:
- Approach another suitable bank
- Consider another financing facility
- Structure the funding across different facilities
- Explore financial institution or alternative funding
Not every rejected case should be submitted again immediately.
Sometimes the right financing route is simply different from the one originally applied for.
The bottom line
A bank rejection is a signal to reassess the financing strategy.
If another bank is suitable, we can look at that route.
If traditional banks are not able to support the case, we can assess whether financial institutions or alternative funding may be appropriate.
The important thing is to match the financing route to the company’s actual financial position and funding requirement.
Speak to us about your case
If your company has been rejected by a bank, send us your company name, approximate financing requirement and purpose of funding.
We can assess the case and determine what financing routes may be worth considering.
Bank, financial institution or alternative funding — the right route depends on the business and the requirement.
