Lets look at 10 things you can do to increase your chances of getting accepted for a business loan in the UK.
Getting accepted for a business loan, is not just as simple as having a good profitable business. You need to be able to prove this to a bank or specialist business loan lender, plus meet certain criteria.
Even great businesses can be declined if they don’t have the right paperwork or have made avoidable mistakes before applying.
We should know, here at Bolton Business Finance we are an experienced Business Loan Broker and have applied for hundreds of business loans over the years.
These tips are aimed at SME businesses looking to borrow between £5000 and £1m, they may not be applicable for larger businesses.
How To Improve Chances of Getting Accepted For A Business Loan
Based on all of our first hand experience applying for business loans, we have compiled the list below of important factors to increase your chances of getting a Business Loan.
We have tried to focus on factors within your control, rather than more obvious things like make more profit or impossible things like being in the wrong industry.
Implementing these BEFORE applying for business finance, could make the difference between being accepted and being declined.
1. Prepare Annual Financial Accounts Early
Not having up to date financial accounts is one of the top reasons we see businesses unable to access unsecured business loans.
Just because companies house gives 9 months after your company’s financial year ends1, doesn’t mean you should wait until the last minute to file.
Most banks and lenders will require more up to date accounts, you may even get an automatic decline based on old financial data.
To improve your chances with the largest number of business loan providers, you should have:
- Latest filed accounts are no older than 6 months old
- If accounts are more than 6 months old, then provide management accounts showing trade since last filed accounts
Most accountants will provide monthly or quarterly management accounts. This will also make it quicker and easier to prepare your annual accounts.
2. Have A Business Bank Account
Having a business bank account might seem obvious but its a common issue we have seen when applying for business loans on behalf of our clients.
You should ideally have a business account, in the correct name of the business. This should be clearly visible on the bank statements.
Using a personal bank account for a limited company could be an automatic decline with most lenders.
For Limited Companies: You should have a business bank account with a UK registered bank, in the name of the limited company.
For Sole Traders: You should have a separate business bank account in the trading name of the business. This should be separate from your personal bank account and only include business transactions.
It can take 1-6 weeks to open a bank account, so give yourself plenty of time when applying for one.
3. Use Business Bank Account For All Income & Outgoings
Many business loan providers will look at a businesses last 3-12 months business bank account statements, when assessing a loan application.
If you have revenue and transactions not going through your business bank account, they may not be taken into account.
This could make it appear that you cannot afford loan repayments.
Examples
- Taking payments in cash and paying suppliers in cash without depositing into your bank account
- Using a personal account for business transactions
- Receiving payments via a payment service provider (PSP) and not depositing it to your main bank account
4. Check Your Business Credit Score & Report
A quick and easy thing to do before applying for a business loan, is to check your business credit score. Many banks and lenders use them as part of their business loan application process.
These are produced by companies such as Experian, Dun & Bradstreet and Equifax.
You should check for any obvious errors and contact the report provider to correct any incorrect information.
Also if there are any CCJ’s against the business, this could seriously impact any business finance applications.
Find out more about applying for a Business Loan With A CCJ.
5. Have a Director Who Is a Homeowner
This may be more difficult to change for your business but a large number of the UK’s specialist business loan lenders require at least one director to be a home owner.
For many this is a mandatory requirement, not having any directors who are a homeowner would result in a decline, regardless of how good the business is.
Important: Directors may be required to give a personal guarantee, this could put their personal assets at risk if the business fails to repay the loan on schedule.
6. Plan Future Funding Requirements & Apply In Advance
Like most things in life, being desperate is not a great place to be in.
The same is true when applying for a business loan, you should give yourself plenty of time and highlight possible cashflow issues months in advance.
Taking the time and creating cashflow forecasts looks professional to loan underwriters.
Applying in advance means you are not just going with the quickest available business loan provider.
7. Check All Directors Personal Credit Files
Personal credit scores can effect a business loan application, so check them before applying.
Most business loan applications involve a soft credit check or director credit search.
A limited company with multiple directors could be declined for a business loan because one director has bad personal credit.
Taking too much money out of your business could negatively impact the balance sheet. This in turn could negatively impact a business loan application.
Speak to your accountant and budget for an appropriate level of director and shareholder renumeration.
Things such as a negative net worth could reduce your chance of getting accepted for business finance.
Once again planning ahead for any changes in leadership or ownership, can avoid disappointment when securing business finance.
Many business loan providers will not accept applications from companies that have changed hands in the last 12 months.
10. Apply Using A Business Finance Broker
Last but definitely not least, why struggle with all these things yourself when you can use an experienced business finance broker such as ourselves.
A business loan broker can help you select an appropriate lender for your circumstances and correctly package your application.
A finance broker can also help identify issues such as those listed above and more, to make sure you stand the best chance of getting approved.
Summary: How To Get Accepted For A Business Loan
Applying all the above tips may increase your chances of being accepted for a Business Loan but does not guarantee it.
Knowing which lenders are best suited to your businesses circumstances, can be just as important.
That’s why working with an business loan broker such as Bolton Business Finance can help improve your chance of getting a loan offer.
Fill in the form below to speak with an member of our team.