Almost every business needs to borrow at one point or another. However, that doesn’t mean that every application for a loan is successful – far from it. Here are a few reasons you could find yourself turned down by some lenders and what you can do about it.
Your credit score is compromised
Banks in particular place great emphasis on credit scores. They usually want to see reams of paperwork before they’ll even consider an application.
If you’ve failed to pay your suppliers on time or ever defaulted on a loan, your credit score could be significantly damaged and the computer is almost certain to say no.
Similarly, if you’re a recent start-up, you may not have much of a credit score yet, which can be equally damaging.
Your business is in a high-risk sector
Some business sectors are inherently riskier than others. For instance, most restaurants don’t make it to their first anniversary. Some lenders are inherently more risk-averse than others and will turn down all applications in a high-risk sector, whatever the prospective borrower’s merits.
You don’t have any security to offer
If your credit score or business sector suggest a high risk, the lender may require collateral for a loan.
Whilst secured loans are generally cheaper, this is no consolation if you don’t have any collateral to offer. In other cases, the lender may ask for a personal guarantee, which if you don’t have any business assets, it instead places the risk on your private assets.
You’re behind on your taxes
This is a particular red flag for lenders, as HMRC has collection powers that far exceed those of any other creditor. In particular, don’t get into arrears with your VAT, as the appropriate powers are relentless.
You talked to the wrong lender
This is often the big one. You may have a perfectly stable young business with great prospects and a decent cash flow, but a bank, with its convoluted approval criteria, will still turn its nose up at you.
Enter alternative lenders like Cashsolv
With quite different criteria, we’re more interested in where your business is going than where it’s been.
With innovative solutions like asset-based lending (where you borrow against the value of your premises, plant or equipment) and invoice factoring and discounting (where you borrow up to 85% of the value of your invoices, as soon as you issue them), your past performance and credit score become far less important and your chances of acceptance rise exponentially.
If you hit a sudden cash flow crisis, we can even arrange an emergency loan, with funds in your account in under 24 hours. Apply for a bank loan, and it would take you longer than that to collate the paperwork necessary to support your application, let alone the days-to-weeks the bank will require to reach a decision.