Getting a business loan can be a game-changer for your startup or small business. It can help you expand operations, purchase machinery, manage working capital, or even survive a tough financial phase. But securing a business loan isn’t always easy — especially if you unknowingly make mistakes during the application process.
Here are the top 7 mistakes you must avoid to improve your chances of loan approval and secure better terms.
1. Not Checking Your Credit Score
Before applying for a business loan, it’s essential to check both your personal and business credit score (if applicable). Lenders use your credit history to assess how reliable you are with repayments.
Tip: Aim for a CIBIL score of 750+ to increase approval chances. If your score is low, take time to improve it before applying.
2. Submitting Incomplete or Incorrect Documents
One of the most common reasons for loan rejection is submitting incomplete, incorrect, or mismatched documents. From GST returns to bank statements, lenders verify everything thoroughly.
Tip: Double-check document formats, update outdated info, and ensure your KYC and business registration papers are accurate and up to date.
3. Ignoring the Lender’s Eligibility Criteria
Every lender has specific eligibility norms based on business turnover, age of business, profit margins, and more. Ignoring these can lead to instant rejection.
Tip: Read the eligibility criteria on the lender’s website before applying. It saves time and protects your credit score from unnecessary checks.
4. Applying for Too Many Loans at Once
Some business owners apply to multiple lenders at the same time hoping to increase their chances. But each application triggers a hard inquiry on your credit report — which can actually hurt your credit score.
Tip: Do your research, shortlist 1–2 best-fit lenders, and apply selectively.
5. Choosing the Wrong Loan Product
Not all business loans are the same. Some are designed for working capital, others for equipment purchase, invoice financing, or term loans. Choosing the wrong type can lead to mismatch in repayment terms or rejection.
Tip: Understand your business need and match it with the right loan product. Speak to a loan advisor if needed.
6. Not Having a Clear Business Plan
Lenders often want to understand how you’ll use the loan and how you plan to repay it. Not having a solid business plan raises red flags.
Tip: Be ready with a short but clear plan explaining your business model, revenue streams, and how the loan will boost your growth.
7. Not Comparing Interest Rates & Terms
Rushing into the first loan offer you get might lead to higher interest rates, hidden charges, or rigid repayment terms.
Tip: Always compare interest rates, processing fees, prepayment charges, and tenure across multiple lenders before deciding.
Final Thoughts
Applying for a business loan is a big financial decision — and one mistake can cost you time, money, and even the opportunity. By avoiding these common pitfalls, you’ll be one step closer to getting the funds your business truly deserves.
Frequently Asked Questions (FAQs)
Q1. What is the minimum CIBIL score required for a business loan?
A score of 750+ is ideal, though some NBFCs may accept applications with a score above 650.
Q2. Can I apply for a business loan without ITR?
It depends on the lender. Some fintech and NBFCs may offer loans with alternative income proof or GST returns.
Q3. What documents are required for a business loan in India?
Typically: PAN, Aadhaar, business registration proof, GST returns, bank statements (last 6–12 months), and ITRs.
Q4. How long does it take to get a business loan approved?
Banks may take 7–15 days, while digital lenders can approve loans within 24–72 hours if documents are complete.