How do lenders evaluate the creditworthiness of start up loan applicants?

23 Jun 2024

Ever wondered how lenders evaluate the creditworthiness of start up loan applicants? Find out in our latest blog.

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You’ve picked out a start up loan you like, sent off your application, and now it’s time to wait.

Considering start up loans can sometimes take up to three months to materialise, you might find yourself gnawing at your fingernails wondering how the lending company is going to come to their decision.

It's likely you're not the only person wondering. In just one year, 2.4 start up loan applications were made per 10,000 people in the UK

Here are some of the elements lenders use when evaluating the creditworthiness of start up loan applicants.

Personal credit scores

Or in other words, your financial history.

Credit scores are a numerical measurement designed to display your likelihood to repay a loan. The number you’re assigned is calculated using your payment track record (whether or not you pay bills on time), your debt record (if you have any outstanding loans), and your history with other financial obligations.

Credit scores also measure how reliable you are by checking how many financial accounts you have opened and closed, how many credit checks have recently been run in your name, and whether or not you are registered to vote.

By their nature, start ups are usually younger businesses, which means they have less financial history. For this reason, start up loans often require personal guarantees and the applicant may be liable for the loan, so your personal credit score may be used to evaluate the creditworthiness of your business.

Company history and financial health

Despite the younger nature of start ups, lenders may use your company history to determine creditworthiness. They might look at how long you’ve been operating for, the career histories of your directors, and how much revenue you’ve made so far.

Business plan and growth projections

Lenders will want to see how you plan to repay the loan. To determine creditworthiness, they will assess your business plan, cash flow projections, and they may even agree to look at any recently signed deals.

How do I create a business plan?

You’ve got a vision. The business plan is where to share it. In your business plan you’ll want to include:

  • Company details: Include the company name, purpose, products or service, along with what makes you unique.

  • Financial projections: Include any cash flow projections.

  • Market research: Demonstrate why you set your company up. What gap in the market are you trying to fill? How big is the market? Who are your competitors?

  • Your team: Outline the team, including any co-founders. Depending on their role in the company, you might like to include their career history, as this can sometimes help your case. For example, if you’re opening a marketing agency and three of your founders are ex-CMOs, that’s something you should include.

  • Growth strategy: Marketing and sales strategies should feature in any good business plan.

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Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.

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