There are many reasons that contribute to an unsuccessful loan application which I generally group them in following 5 main categories :
Category 1 : Applicants do not meet the min. criteria set by banks
Different bank has different set of min. requirements to be fulfilled before accepting an application, among them include, min. 3 years of business in operation supported with up to date audited (certified) financial statement, the date of application must not be more than 18 months from last audited (certified) financial statement, the industry must not fall under banks' negative list (construction, computer, textile/garment, F&B, automobile), and no adverse financial records on the company or its directors, partners or proprietor (CTOS & CCRIS must be negative). Some banks only accept applications from a "Sdn Bhd".
Applicants must fulfill ALL the above requirements before considering submitting its application.
Category 2 : Applicants unable to provide sufficient documents / information
Most applicants normally has difficulty in providing the latest management account requested by banks, especially the SMEs. Some companies do not employ full time accounting staff to generate monthly account and only rely on their external accountant to prepare full year account for tax submission purpose.
Sometime banks also ask for the tenancy agreement to be provided where in actual fact the business owner rented the premises from relative or friend without signing an agreement. Normally banks do not require such agreement but from my experience the agreement is compulsory for submission to CGC. I do have a client who did signed a tenancy agreement with the landlord but the agreement was not renewed after expiry and my client continues to bank in the same rent for years without any problem. To comply with CGC's requirement, this client contacted the landlord (which they did not meet for years) to sign a fresh agreement. This had alerted the landlord that he forgot to revise the monthly rent for years and decided to ask for a rent increase which my client is forced to accept.
Some banks would ask for a financial projection from applicant which is quite a difficult task for them as most of them do not employ a qualified accountant.
If an applicant who faces any of the above predicaments and do not ask for help, he probably will withdraw his documents from banks and continue his business without bank financing for life.
Category 3 : Unsatisfactory financial record
Besides making sufficient profit to sustain the business which can be clearly seen from the Profit & Loss Account, an applicant is also expected to maintain a healthy Balance Sheet. In layman terms, a Balance Sheet is deemed unhealthy if any of the following appear in Balance Sheet :
a ) negative shareholders' fund, although company is reporting profit in recent years
b ) negative retained profit, although company is reporting profit in recent years
c ) high gearing ratio / low current ratio
d ) high existing bank borrowing utilization (not in proportion to turnover)
e ) amount owing by directors
f ) long debtors collection period / stock holding period (say, > 6 months)
g ) high trade creditors balance
Category 4 : Unsatisfactory prospect of the business
An applicant must be able to convince bankers on the prospect of the business with supporting contracts in hand or other form of evidences that the existing business would not be significantly/adversely affected in the event of unforeseen change of business environment. An applicant would have a better position if he is in a recession-proof business (which is very subjective to determine).
Category 5 : You already have sufficient working capital
Banks will normally determine the working capital requirement of the applicant before processing the application. If a bank feels that the applicant already has sufficient bank facility to support the business, it would not consider providing additional facility. In determining the working capital requirement of a business, a bank will take into consideration of the following factors : projected turnover for next 12 months, stock holding period, credit terms granted to customers and credit terms granted by suppliers. A trading company who imports from overseas tends to require higher working capital to sustain its business.
Among other grounds that will cause an application to be rejected include, adverse market check result on the character of the directors, partners or proprietor, key persons are not the registered owner of the business, submission of suspicious financial statements (especially when bank statement transactions do not match the reported turnover), reducing reported turnover, applicant unable to produce original documents for verification purpose, or applicant has only one customer (or supplier).
