Loan Rejection Reasons and Next Steps to Get Approved 2026
Sharda Associates CA Firm Bhopal, Madhya Pradesh, India
Your loan was rejected and you don't know what to do next
One of the most frustrating moments for any business owner is getting a loan rejection letter. You spent weeks prepping the docs. You came to the bank several times. Patient, you waited. And then the bank said no.
Most people don’t know this. Here’s why. A loan denial is rarely ever permanent. In most cases the business is really viable. The rejection is not because the bank does not want to lend you money but because of specific, identifiable, fixable problems with the application.
Sharda Associates, CA firm in Bhopal, Madhya Pradesh, India, helps businesses all over India to solve these problems precisely. Rejected loan applications are analyzed by our CA team who identifies all individual issues be it a DSCR calculation mistake, a CIBIL issue, missing documentation or weak financial projections and prepares amended, complete documentation that gives your reapplication the best chance of approval. We have helped over 45,500 businesses across India in getting their loan documentation right and many of these came to us after an initial rejection. In case your loan is rejected, then you need to call us at +91 89899 77769.
Get Your Rejected Loan Application Reviewed Free →
Why Most Loan Denials Can Be Reversed
The Real Reason Banks Reject Loans
The majority of MSME loan rejections in India are documentation rejections and not business rejection. The bank isn’t saying you have a bad business. It says that it can’t do a credit appraisal that will support a yes based on what you submitted. Fix the documentation problem and the same business gets a different outcome.
This is a very important distinction. Often an entrepreneur who thinks their business was rejected walks away for good. An entrepreneur who knows their paperwork has been rejected comes back better prepared.
Our CA team at Sharda Associates goes through your rejection letter and finds every specific deficiency, and tells you exactly what needs to change. In most cases we can have corrected documentation ready within 3 to 5 working days.
Get Your Detailed Project Report →
5 Common Reasons Loans Get Denied (And How to Fix Them)
Reason 1 – Low Credit Score or Defaults
The rejection letter from the bank mentioned inadequate credit history, low credit score or default with any financial institution. Your CIBIL score is less than 650 or your report has an entry of active NPA (Non-Performing Asset).
Why Banks Decline for This
The ability to repay is the benchmark for MSME loans. The only record from the past the bank has to show how you manage borrowed money is your CIBIL score. When your score goes below 650 or you have an active default, the bank understands that lending to you is a big repayment risk -- particularly for collateral free loans, where there is no security of property.
Step 1 – Download your CIBIL report in detail from cibil.com. Not just the score but the complete report showing every account, every payment history and every enquiry.
Step 2 – Locate the actual negative entries. Closed accounts reflecting negative – Contact lender for No Dues Certificate and submit to CIBIL for update. Recent late payments – not a quick fix, but paying on time consistently going forward will improve your score over the next 6-12 months.
Step 3—If there is an active default – it has to be cleared before any formal application to the bank. Pay off the lender. Obtain a No Objection Certificate and ensure that the CIBIL record is updated.
Step 4—Think of an NBFC or fintech lender that looks at alternative credit assessment using GST transaction data and bank statement patterns when fixing up CIBIL Use this as a bridge until your official credit profile comes back.
Step 5 — After 6 to 12 months of clean credit history — approach a bank again with a stronger CIBIL profile and a well-prepared CA-certified Project Report.
Step 5 – Keep a clean credit history for 6 to 12 months and then approach a bank again with a better CIBIL profile and a well done CA certified Project Report.
The rejection letter mentions incomplete documentation, insufficient financial information, or requests for additional financial details. Your CMA Report was returned with specific queries. Your Project Report was flagged as inadequate.
Why Banks Reject for This
Banks conduct structured credit appraisal. Every step of that appraisal requires specific information in specific formats. Missing information does not get estimated — the file gets returned. Incorrect information — particularly DSCR below 1.25 or a Balance Sheet that does not balance — results in automatic return before detailed appraisal begins.
This is where Sharda Associates can help most directly. Our CA team reviews your returned documentation, identifies every specific error, and prepares corrected documentation.
The most common documentation fixes we make:
DSCR calculation error — Depreciation not added back to Net Profit After Tax in the Net Cash Accruals calculation. This single error makes DSCR appear much lower than it actually is. Correcting it alone resolves a significant percentage of DSCR-related rejections.
Wrong MPBF method — Using Nayak Committee method when the bank requires Tandon Committee Method 2 for your loan size. Produces incorrect CC limit eligibility.
Balance Sheet not balancing — Total Sources not equalling Total Application in Statement 3. Immediate return without appraisal.
ITR mismatch — Historical turnover in CMA Operating Statement not matching filed ITR. Banks cross-verify these automatically.
Missing CMA Report — For loans above Rs.10 lakh, the CMA Report with all 7 RBI-standardised statements is mandatory. A Project Report alone is insufficient.
Reason 3 — Inadequate Repayment Capacity
The bank says projected cash flows are insufficient to service the loan. DSCR is below minimum threshold. Revenue projections are not credible relative to business scale.
Why Banks Reject for This
DSCR — Debt Service Coverage Ratio — must be above 1.25 for every individual repayment year. This is the bank's primary measure of whether your business generates enough cash to repay the loan. A single year below 1.25 results in rejection regardless of how strong other years look.
Get Your Feasibility Report →
Step 1 — Verify that the DSCR formula was applied correctly. Net Cash Accruals equals Net Profit After Tax plus Depreciation — not Net Profit alone. Many rejections are caused by this calculation error, not by genuine business weakness.
Step 2 — If DSCR is genuinely low after correct calculation — extend the loan tenure. Longer tenure reduces annual principal repayment which reduces total annual debt service which directly improves DSCR.
Step 3 — Request a longer moratorium period — 12 months instead of 6. This delays principal repayment to a period when your business has ramped up to higher revenue levels.
Step 4 — Review whether all legitimate revenue streams are included. A flour mill generates bran and by-product revenue. A poultry farm generates manure sales. A dairy unit generates spent cow sales. Including all legitimate income improves Net Cash Accruals and therefore DSCR.
Step 5 — Our CA team at Sharda Associates restructures your financial projections using real market data for your business type and location — building DSCR above 1.25 through legitimate financial structuring, not manufactured optimism.
Get Your DSCR Fixed and Loan Resubmitted →
Reason 4 — Technical or Operational Viability Concerns
The bank's credit officer raised questions about your production capacity claims, your machinery cost estimates, or the technical feasibility of your proposed business. The technical section of your Project Report was flagged as inadequate.
Why Banks Reject for This
Banks verify technical claims against their internal industry benchmarks. A flour mill claiming 8 tonnes per day from Rs.5 lakh of machinery is technically inconsistent. A poultry farm projecting 25 litres daily yield per bird is biologically impossible. These inconsistencies tell the credit officer that the document was not prepared by someone who knows the industry.
Step 1 — Get actual current quotations from authorised machinery suppliers for your specific equipment. Every major piece of equipment must have a supplier quotation attached to your Project Report as an annexure.
Step 2 — Verify that your production capacity claims match your machinery specifications. If your machinery produces 3 tonnes per day maximum — your revenue projections cannot be based on 5 tonnes per day output.
Step 3 — Use industry-standard parameters for your specific business type. Our CA team at Sharda Associates uses verified technical benchmarks — breed-specific yield data for dairy, FCR standards for poultry, milling efficiency rates for grain processing — that bank credit officers recognise as credible.
Step 4 — If your Project Report was prepared without real technical research — a complete rewrite from scratch is often faster than trying to patch a fundamentally weak document. Our CA team prepares technically accurate Project Reports from Rs.2,999.
Reason 5 — Inadequate Collateral or Security
The bank says the collateral offered is insufficient to cover the loan amount. Property valuation came in lower than expected. The security offered does not meet the bank's loan-to-value requirements.
Why Banks Reject for This
For secured loans — banks require collateral whose realisation value covers a percentage of the loan. If your property value is insufficient — the bank cannot sanction the full loan amount against it.
Option 1 — Apply under CGTMSE — Credit Guarantee Fund Trust for Micro and Small Enterprises. CGTMSE provides government guarantee coverage of 75 to 85 percent of the loan amount — eliminating the collateral requirement entirely for eligible MSME loans up to Rs.10 crore. Our CA team prepares CGTMSE-specific documentation starting at Rs.2,999.
Option 2 — Reduce the loan amount to match your available collateral coverage. Supplement the balance through a working capital facility secured against business assets like stock and debtors.
Option 3 — Add a co-borrower or guarantor with additional property to improve the overall security position.
Option 4 — Apply under Stand Up India if you are an SC/ST or women entrepreneur — which provides CGFSI guarantee coverage making collateral-free loans up to Rs.1 crore available.
Get Your Project Report →
Reason 6 — Loan Purpose Not Clearly Business-Related
The bank flagged that the stated loan purpose is unclear, non-specific, or appears to include personal expenses. The utilisation plan in your Project Report does not clearly demonstrate income-generating business use.
Why Banks Reject for This
Banks are required to verify end-use of funds. Loan purpose that is vague — "business expansion and working capital" — gives the bank no specific utilisation to verify. Loan purpose that appears personal creates compliance risk for the bank.
Your Project Report must specify exactly what every rupee of the loan will be used for. Not "machinery purchase" but "one commercial mixer grinder model X from supplier Y at current quoted price of Rs.X." Not "working capital" but "45 days raw material stock of X kg at current mandi price of Rs.X per kg."
Specific, itemised, verifiable utilisation plans pass bank review. Generic statements do not.
Reason 7 — Missing Regulatory Compliance
The bank flagged that your business cannot legally operate without specific licences or approvals that are missing from your documentation. FSSAI licence for a food business. Factory licence for a manufacturing unit. BIS certification for a product manufacturer.
Why Banks Reject for This
Lending money to a business that cannot legally operate is a direct risk for the bank. If your business requires a specific licence and you do not have it — or cannot demonstrate a credible timeline for obtaining it — the bank cannot sanction the loan.
Step 1 — Identify every applicable licence for your specific business type and state. Our CA team maps regulatory requirements for all major MSME business categories across all states.
Step 2 — Apply for pending licences immediately. Include application confirmation receipts as evidence of in-progress compliance in your reapplication.
Step 3 — Your project report's legal feasibility section must show each required licence, current status, and expected obtainment date. A credible timeline is acceptable — a missing section is not.
The Reapplication Strategy — What to Do After Rejection
The Four Steps Between Rejection and Approval
Step 1 — Read the Rejection Letter Carefully
The bank's rejection letter contains specific reasons. Read every word. The specific language tells you exactly what needs to be fixed. Do not assume — identify the precise stated reason for each issue raised.
Step 2 — Call Sharda Associates for a Free Review
Our CA team reviews your rejection letter and your existing documentation at no charge during the consultation call. We identify every specific issue — including problems the bank did not explicitly mention but that would have caused rejection in subsequent review. Call or WhatsApp +91 89899 77769.
Step 3 — Prepare Corrected Complete Documentation
Based on our review — we prepare corrected and complete documentation. Revised CMA Report with correct DSCR and MPBF. Updated Project Report with real market data and correct financial projections. Feasibility Report where required for scheme applications.
Step 4 — Reapply to the Right Bank With Complete Documentation
Sometimes reapplying to the same bank with corrected documentation is right. Sometimes a different bank — one more active in your sector — is the better choice. Our CA team advises on which option gives you the best reapplication outcome based on your specific situation.
Apply Again to the Same Bank or Another Bank
When to Reapply With the Same Bank
The dismissal was based only on the documentation. The bank's credit officer was very helpful and specific in explaining the problems. You already have a good banking relationship with that branch. The rejection was in respect of a government scheme loan, the implementing agency route and bank are already decided.
When to Consider Changing Banks
The rejection seems to be due to a general risk aversion, not any specific issues with the documentation. You know that another bank in your area is more active in lending to your line of business. The bank you went to has little or no experience with the type of loan you want or in your industry.
How Sharda Associates Helps Rejected Loan Applicants
At Sharda Associates, our CA team is adept at reviewing rejected loan applications and putting together corrected, complete documentation to give reapplications the best possible footing. We are serving clients all over India Madhya Pradesh, Maharashtra, Rajasthan, Uttar Pradesh, Bihar, Gujarat, Karnataka, Tamil Nadu and all others completely online.
Send us your rejection letter and any existing documentation via WhatsApp or email. Our CA team reviews everything and calls you the same day to tell you exactly what went wrong and what needs to change. Then we prepare the corrected documentation - Project Report, CMA Report and Feasibility Report wherever required as a package.
Every rejected MSME loan application we have seen at Sharda Associates had one thing in common: a truly viable business behind it. The business was almost always worthy of funding. The documentation did not contain what the bank needed to approve it.
All the seven reasons for rejection discussed in this guide, CIBIL problems, documentation issues, low DSCR, technical viability issues, lack of collateral, vague loan purpose and lack of regulatory compliance are all identifiable and all fixable.
The road from rejection to acceptance is easy. Know exactly why you were rejected. Address all found problems thoroughly. Prepare complete and corrected CA-certified documentation. Apply again, with confidence, to the right bank.
At Sharda Associates our CA team has taken hundreds of businesses through this process from rejection to approval in all states of India We are prepared to do the same for you.
Call or WhatsApp +91 89899 77769
Get Your Project Report →
