Why banks reject business loan applications, and how to fix it

A rejection rarely comes with a detailed explanation. In our experience most come down to a handful of reasons, and many of them can be fixed before you apply. These are the most common.

1. Late payments in CCRIS or CTOS

Banks check the repayment record of the business and its directors. CCRIS, run by Bank Negara Malaysia, shows the last 12 months of repayment conduct. Credit reporting agencies such as CTOS combine this with other information, including legal records.

Fix: get your free CCRIS report from Bank Negara's eCCRIS service before you apply. Bring overdue accounts up to date, and prepare a short written explanation, with evidence, for any late payment that had a genuine reason.

2. Weak bank account conduct

Low average balances, returned cheques, an account that is often overdrawn, or money that comes in and goes straight out all make a bank cautious.

Fix: keep business income in the business account, avoid returned cheques, and give your statements a few months of steady conduct before you apply.

3. Cash flow that doesn't cover the instalments

Banks work out whether your cash flow can pay all your monthly loan commitments, existing and new, with room to spare. This is often called the debt service coverage ratio (DSCR).

Fix: apply for an amount and tenure your cash flow can support, consider combining expensive short-term borrowings first, and show current management accounts if the business has improved since your last audited accounts.

4. Too much existing debt

If the business already carries heavy borrowings compared with its own capital, a bank may see too much risk in lending more.

Fix: reduce or restructure existing borrowings, or strengthen the balance sheet, before applying for more.

5. A short track record

Many banks prefer two to three years of audited accounts. Younger businesses are harder for them to assess.

Fix: look at schemes designed for younger companies, such as SJPP's WCGS Start-up, and support the application with signed contracts and the directors' experience.

6. Not enough collateral

Without property or fixed deposits as security, larger facilities can be hard to approve.

Fix: government guarantee schemes reduce the security a bank needs. SJPP schemes, for example, guarantee 70% to 80% of the financing. CGC also offers guarantee schemes for smaller businesses.

7. Documents that are incomplete or don't match

If the revenue in your accounts doesn't match your bank statements, or documents are missing, the bank either asks questions that delay the case or declines it.

Fix: submit a complete set, reconcile your figures first, and explain any differences up front. Our guide to the documents you need lists what to prepare.

8. The wrong bank or the wrong facility

Each bank's appetite differs by sector, business size and facility type, and it changes over time. Applying to many banks at once can also make lenders cautious, because recent applications show in your CCRIS report.

Fix: choose the banks and the facility that fit your case before you apply, and make each application complete.

This guide is general information, not financial advice. Requirements differ between banks and change over time, so check the current requirements for your own case.