Getting a loan through traditional lending is more difficult than ever. Small and growing businesses can be turned down for all sorts of reasons.
Most of these are beyond your control. However, you may genuinely need more information and securities on your side. Even alternative lenders – a much freer source of finance – ask for a few certainties before you’re approved.
Here are some of the common pitfalls that could affect your business finance request…
1. You have a low personal credit rating
Some lenders weigh up your own credit score, even though the business should be assessed on its own terms. So before you seek finance, run a free credit check online through a website like ClearScore or Experian.
Or go to a specialist finance broker instead. Johnson Reed, for example, only use lenders who fairly assess your business’ ability to pay off debt in an area of work they understand.
2. There’s no clear business plan
In every case, you’ll need an in-depth business plan that outlines your growth for the next few months or years – however long the loan is due to be paid back.
Short-term finance can pay for itself very quickly. Prove this with data, competitor analysis and a journey for the brand moving forward. Lenders like to see how you’ll scale up, especially since it provides an opportunity for more loans in the future.
3. The business is only a year or two old
The definition of ‘new’ has become a lot stricter in recent years – at least amongst traditional lending. You may have been operating for several years, but still be turned down. It’s a crisis in confidence on the lender’s part.
Again, alternative finance is often much more forgiving. As long as your profits are strong and stable, time is less of a factor. A five- or six-month balance sheet should be enough for a specialist lender. You may be able to gain support as a startup too, for a fitout or equipment purchase.
4. You don’t have any collateral
Some lenders will ask you to put something up as a safety net in case the loan can’t be repaid. You should have collateral prior to applying in the event that this is the case.
A mortgage – either for yourself or the business premises – is desirable. Vehicles may count as well, along with an existing investment account under your name. Secured loans generally have lower interest rates because there’s less risk.
5. The paper trail is incomplete
There’s every possibility you could be denied due to lack of evidence. Tax returns, for example, need to be dated and accounted for. Your business’ bank accounts must be in excellent shape, with dates, accurate figures and the right transactions on paper.
Meanwhile, you’ll face extra scrutiny if you require a license to operate. Don’t leave any key detail of the application to chance; have your evidence in order.
Johnson Reed have shown hundreds of businesses how to get approval over the years. It’s part of our service as a common sense broker. Contact us for alternative finance you can trust.
