7 Ways to Stop a Business Loan Decline

When you approach a lender for a business loan they will ask to see your statutory accounts, bank statements and will ask you to complete a loan proposal or application. They will use this information alongside various credit files, databases and public registers to assess your company and, in addition to the business information, a lender will undertake a full credit review of the directors and major shareholders of the company.

An underwriter will review the data and either accept or decline the loan application. There are many reasons why a lender may decline an application and it is best to minimise declines as these can impact your overall credit profile. So how can you avoid a decline:

 

• Make sure your accounts are up to date.

A lender wants to see the most current financial statements of the business, if you do not have timely filed accounts with Companies House, then it is unlikely a lender will be able to fund you.

• Only approach lenders that operate in your business sector.

Most lenders have a narrow market in which they operate. In addition, lender appetite can be fluid and dependant on their own access to capital and other factors such as sector and regional economics, risk and growth opportunities. So before applying for a loan check the lenders criteria to avoid wasting your time and getting those unwanted declines.

• Be honest on your application.

The lender’s due diligence is thorough and if there are inconsistences on your application compared to your credit file, they will decline the loan. Most lenders require a personal guarantee from the directors for any business loan and so they will also look at personal borrowings and see if these are managed well. How you manage your personal finance is an indication of how you will manage your business finances.

• Make sure you have enough trading history and avoid director changes.

New businesses pose a risk for lenders because they do not have enough financial information to determine the potential to repay a loan. Most lenders want to see at least two years of trading history, but the start date for a business will be reset if there are changes to a directorship. There are some lenders that will ‘take a view’ on these things, however these specialist lenders will be more expensive.

• Profit is an opinion, cash is fact.

It is not always the case that CCJs, insolvency or a bad credit history will rule out new borrowing. There are lenders in the market for all credit risk profiles. A lender will look for enough profit in the business to sustain new debt and determine if the company is currently solvent and likely to be for the duration of the loan. Make sure your accounts have the right level of profitability for any new borrowing.

• Numbers are not everything.

Read your customer reviews, you bet a lender will. As part of the due diligence, underwriters will review all the public information about your company. This can be customer review sites, website reviews, industry ratings and even your website functionality and analytics. All business owners know that customer reviews go a long way to determining whether a business is successful or doomed to failure, so a lender will look at this information as well.

• Put your best foot forward.

Statutory accounts are a historic record of the company’s financial position and as such are not always an accurate and up-to-date reflection of what is currently happening in the business. Get into the habit of preparing management accounts and present these to a lender. Particularly if your business performance has improved, either through growth or better management and control.

A regular review of your business performance gives you a more holistic picture of your business’s health—and helps you make more informed decisions going forward. Which in turn looks good to lenders.

• Regularly review costs, expenses and see how these affect your cash flow and profitability compared to past years.
• Check the income pattern, note any significant swings in revenue and determine if these can be explained by operations, such as launching a new product, marketing activity or new team hires.
• Include any positive narrative in the management accounts. Such as new customers, competitor failures, industry awards or new key hires.
• Highlight any marketing initiatives and positive customer surveys and feedback.

As we have seen above there are many reasons why a lender might decline a business loan. The lending market is specialised. You approach a professional to sell your house and do your tax return so why not use a professional credit broker to find your finance and avoid those declines.

Why use a broker?

A broker will save you time and reduce the potential of declined applications. The lending market is complex and vast. A broker has the specialist knowledge of these markets, and they will assess the business and approach only the lenders that ‘fit’ your circumstances. They may even be able to suggest alternative, cheaper types of capital such as asset finance or invoice finance options.

Want advice on how to get your business ready for funding? Give us a no obligation call. Our small, friendly team can find you the right solution and help you leave those scary declines behind.

07534 186 689 – available 7 days a week