Reviewed on 18 February 2020
Many business owners are puzzled on why their business loan got rejected. Recently I have encountered a business owner who insisted that he had everything in place and his loan will surely be approved; so he don’t need any consultant for his loan. Therefore, he decided to go ahead to the bank himself.
In the end, he was furious and puzzled when he found that he got rejected.
He is not the only one. Many business owners who spoke to me, think that they have everything covered. I am referring to those having good profits in their business financials, strong financial health on their bank statements and with AA rating in their Credit Bureau Search, but why are they keep being rejected by the banks?
There are many reasons for rejection, but most bankers will not let you know the reason due to “black box” effect from the bank’s credit system, or worst when the banker themselves don’t even know the reason.
I am here to share some of those rejection reasons with you.
Bizsquare have done a survey and statistics on which is the most undiscovered reason that even experienced business owners or accountants will 99% miss them out.
The No. 1 Undiscovered reason why bank will reject your loan is…………………
The No. 1 often unnoticed factor is this thing
Balance to Income (BTI) Ratio
What is Balance to Income ratio?
The introduction of Balance To Income (BTI) across Financial Institutions (FI) in Singapore is intended to help borrowers avoid accumulating further debt.
From 1st June 2019, MAS regulations on Balance-To-Income (BTI) ratio, your Total unsecured credit facilities limit cannot exceed 12 times of your monthly income. Read here to find out more.
If your total interest-bearing outstanding on all credit cards and unsecured credit facilities with all Financial Institution (FI) in Singapore exceed the industry-wide borrowing limit for 3 consecutive months, your account will be suspended, and you will not be able to:
- Charge new amounts to your existing credit card(s) and/or use other unsecured credit facilities with all financial institutions;
- Obtain credit limit increases on your existing credit card(s) and/or other unsecured credit facilities with all financial institutions;
- Apply new credit cards or other unsecured credit facilities from all financial institutions.
The following groups of customers are exempted from BTI suspension:
- Individuals whose Annual Income exceeds S$120,000. Please provide your income documents for Banks to update accordingly.
- Individuals whose Net Personal Assets exceeds S$2 million. Please provide the necessary documents for respective Bank to review.
It may only seem to affect personal loans. However, SME banking departments are looking at BTI of the Personal Guarantor as a key factor of loan approval.
Therefore, Personal Guarantor of Business loan has to take note that even though your Credit Rating on your CBS is AA, if you failed your BTI, your loan will still be rejected.
How To Avoid Being Negatively Affected by the BTI ratio being too high
There are some steps you could take to tamper or even avoid the negative effects of the borrowing limit revisions.
For a start, update all your banks on your current income, especially if there was an increase since 2020. This might edge you out of reach of the borrowing limit, making some more unsecured credit available to you.
Clear Your Debts to Stay Clear of the Borrowing Limit
While you might squeeze out a little more credit by updating your income details, that’s a temporary measure at best. The ideal and permanent solution is to clear your debts.
Wiping the slate clean will clear the way for your future. And relieving you of the burden of keeping up with high-interest fees charged on unsecured credit.
Start by getting a credit report, which will give you an idea of your borrowings across the financial institutions. Then, restructure your debts by reducing your interest fees. This means moving your debt from a high-interest instrument (such as a credit card) to a lower-interest instrument (such as personal loans or balance transfers).
Depending on how heavily leveraged you are, you may find yourself being denied for these facilities (as you’ll need to dip even further into your unsecured credit limit.) Hence, you may need to free up some credit first by paying off a credit card or loan the old-fashioned way – regular payments until you clear the debt.
Start Early Rather Than Late
No matter your level of debt, you should still plan to start clearing your unsecured debt. Aim to bring your outstanding credit balance to under the 12-month mark. This way, you will have credit to cope with minor emergencies, instead of completely zero access to credit.
Written by Melvin Ho, CEO & Founder of Bizsquare Management Consultants Pte Ltd, the one-stop business consultancy providing business, property, SME and working capital loans in Singapore. Bizsquare also provides invoice financing, mortgage broker, private financing and business overdraft.