Mar 29, 2021
It’s not uncommon for a business to apply for a loan only to find out they’re not eligible. If you’re facing this predicament, the good news is there are things you can do to make it easier to get business finance now or in the not-too-distant future.
Firstly, we’re sorry to hear that you’re struggling to secure business finance at this time. Whether you’re in need of a quick funding injection to alleviate cash flow problems or longer-term finance to fuel growth, we know how frustrating it can be.
Everyone’s situation is different, however your inability to access business finance could be down to one – or a combination of – the following three key factors:
Insufficient trading history – it may be that you haven't been trading long enough or don’t have sufficient trading history for lenders to assess your application.
Poor credit – bear in mind that most lenders will be unable to provide funding if you have an outstanding CCJ or default (personal or business).
Requested amount too high – if you’ve applied using Funding Options, it might be that you’ve requested an amount that we currently don’t cover (over £10m).
When it comes to applying for business finance, the lender will pay close attention to your company’s financial history. The majority of lenders are looking for a healthy trading track record and evidence of industry experience.
A lack of sufficient trading history (less than 12 months, sometimes six) can make it difficult for the lender to discern whether your business can meet its repayment deadlines.
Everything boils down to “risk”. The lender needs to see that your business is able to meet its liabilities. Without sufficient evidence, the lender may perceive your business as too risky to lend to and end up declining your application.
Fortunately, a growing number of alternative lenders are willing to take a more holistic approach to eligibility.
If this is the case, many high street banks will automatically reject your request for finance. Fortunately, a growing number of specialist SME and alternative lenders are willing to take a more holistic approach to business finance eligibility.
Even if your business credit history is tip top, your personal credit score can have an impact on your eligibility too. A lot of finance products for SMEs require the company’s directors to have a good personal credit score.
Let’s take a look at what the minimum requirements for business finance tend to be. Again, every lender and loan type is different, which is why we try to avoid being definitive.
How long you’ll need to have been trading varies depending on the type of business loan you’re looking to obtain. As a general rule:
For a revolving credit facility/ merchant cash advance – six to 12 months trading minimum
For a term loan (with a term of 2 to 5 years) – two years trading minimum
Invoice finance – an outstanding invoice is required
Property finance (commercial/buy-to-let) – the lenders can lend up to 65% LTV (including any outstanding debt/ mortgage/s secured against the property)
A County Court Judgment (CCJ) is a court order that could be registered against you if you don’t repay money you owe. For example, if your business fails to pay one of its suppliers, contractors or creditors, court action can be taken – typically after several warnings.
When you get a CCJ the ruling will outline how you’ll have to pay the money back and when. You could be expected to pay a lump sum or pay it back in instalments.
CCJs usually appear on your credit file for up to six years, unless you pay the full amount within a month. That’s one of the reasons why it’s always better to pay off the debt as soon as possible.
If lack of longevity is holding you back, you might decide to wait a little longer until you’ve built up the relevant trading history to allow lenders to assess your application.
However, if you can’t afford to wait, you might be able to increase your chances of being approved for finance if you have a property, machinery or a vehicle you’re happy to secure against the loan – you can even use outstanding invoices as security.
Offering security can help you access business finance.
Your credit report is calculated by credit reference agencies (CFAs), including Experian and Equifax. The first step is to check your Experian and Equifax reports for anything unusual.
CRAs store information about your credit history on an ongoing basis and use the data to create a score for your business. When you apply for business finance the lender will request information about you from at least one agency before they consider your eligibility.
Next, you should satisfy any outstanding CCJs. (Satisfying any CCJs will improve your chances of getting funding but it won't guarantee that you get funding.)
You have two main options here: pay the judgement or decide to get the CCJ ‘set aside’. If you choose the latter, keep in mind that you’ll have to attend court to justify why you don’t owe the money.
Some people don’t know when there’s a CCJ against them which is why it’s always worth keeping track of your personal and business credit file. For instance, it might be that the individual or company chasing a late payment has out of date contact information for you.
If your credit history is less-than-perfect or you’re yet to establish a credit history, there are a few things you can do to help set in on the right track. One way is to build up your credit using smaller forms of finance such as a business overdraft or business credit card.
At Funding Options, we can currently facilitate loans of £1,000 to £15m. If you’ve used our platform to find finance and the amount you’re looking for fits this criteria then it’s likely one of the other factors could be the issue.
If you’re a young business (anywhere between three to 24 months), you’re likely to be eligible for around one month’s average turnover. So, if your business’ average revenue is £8,000 per month, you’ll probably be able to apply for around £8,000 in finance.
It might sound obvious, but an incomplete or incorrect application form can lead to a refusal. While large or long-established businesses are likely to have access to the expertise of an in-house finance specialist, such as a financial director, many SMEs don’t.
If you’re unsure of how or what you need in order to apply for business finance, Funding Options can help. Our Finance Experts can help you through the process, from the application phase to when you receive the funds. See what you could be eligible for today.See my funding options
NB: If you’re in need of business debt advice, Business Debtline can help.
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