Naturally, no lender will automatically approve every business loan application, and they will want to know that they are likely to get their money back before lending a business loan.
Having said that, lenders typically make decisions on business loan applications very swiftly, before lending a business loan perhaps within 24 hours. Many of their checks will be automated, based on publicly available data, so you might not be aware of many of the checks your prospective lender carries out.
So, what checks can you expect a lender to carry out before lending a business loan?
Credit checks. Does your business have a track record of repaying previous credit commitments on time? If the credit file shows evidence of previously missed payments, it could affect your chances of being accepted for the loan.
The lender might also decide to carry out checks on the individual credit record of the business principals, so if you have defaults, County Court Judgements and other adverse entries on your personal record, this could also be detrimental to you obtaining a loan for your business.
If you are simply shopping around and making a general enquiry, make sure first that the lender won’t do a ‘hard’ credit check, and will instead only carry out a ‘soft’ credit check. ‘Hard’ credit checks are shown on your publicly available credit report, and if your report shows that a large number of credit checks have been carried out, this is likely to harm your chances of being accepted.
Profit and loss information. It’s likely that the lender will ask you to submit one, two or three years of accounts alongside your application. The lender might have a minimum level of turnover that you have to achieve before they will consider your application. They will also look at how much profit you have been generating, and whether they believe there is scope for you to make the loan repayments alongside all of your other business expenses.
Amount of existing debt. If you, or your business, already have significant existing debt, the lender might decide that it would be very risky to provide you with additional credit. They might then decide that you need to pay a higher interest rate on your new loan, or they might decline the application altogether.
Your level of personal investment. If you have ploughed a lot of your own capital into the business, this could improve your chances of being accepted. The lender might conclude that if you have invested your own money, it means you are confident about the business’s prospects.
Collateral. For some loans, the lender will ask you to provide business assets, such as property, as security for the loan. If you have significant tangible assets, such as property and vehicles, it can also encourage the lender to believe that you are unlikely to abandon your business in the foreseeable future. For other applications, they might demand that you and other directors or shareholders provide a personal guarantee.
External factors. A lender might also consider the general state of the economy or factors that specifically affect your own business sector. They might also think about the level of competition you face in your line of business. All of these could affect their thinking regarding whether they are likely to get their money back.
Companies House information. The lender is also likely to look at the information registered with Companies House, so make sure this is up-to-date and accurate before you submit your application.
If you’re unsure about whether you can get a business loan, talk to Funding Bay. We have access to around 250 lenders, and we have extensive experience in obtaining loans suitable for our client’s individual circumstances. Even if the choice of lenders might be limited, and you might be paying a higher interest rate, it’s certainly the case that you can get a business loan with bad credit, or if you have only been trading for a short time, or if you are a sole trader or a partnership.
Get ready for your lender assessment, try our to find out more!
