The Business Hasn’t Been Trading For Long Enough
High street banks are always keen to reduce their risk and as a result can be very cautious in their lending decisions.
If you’ve been trading for under two years, some lenders will shy away from lending you money. This causes problems as the early stages of a business often need additional funding as they grow.
Proving affordability and the ability to make repayments can also prove difficult. Lenders like seeing stable income over a period of time, which is impossible for young or start-up businesses.
The Net Profit Is Too Low
If the net profit of the business is low, lenders may be unwilling to invest their money in what appears to be a risky venture.
Although it is common sense that you should never lend people money that they can’t afford to repay, net profit doesn’t always tell the full story. The latest set of accounts for a company can be over 12 months out of date and if a business has evolved, may be fairly meaningless.
Alternatively, a capital injection can be used to take a business to the next level, allowing them to increase stock, or take on a new, profitable contract. A large increase in net profit as a result of a capital injection is not uncommon, but not all lenders will take this into account.
Banks view certain industries as higher risk, and as a result either limit loans to businesses in that sector or don’t offer them at all.
Although some industries are undoubtedly more volatile than others, we believe that a strong business should be supported.
Conventional lenders will often work to a more restrictive set of criteria and are likely to restrict leisure industries such as gyms, pubs and clubs amongst others.
Previous Adverse Credit
You will have to pass the credit check when taking out out a business loan and this is true whichever lender you choose.
A credit check is a tool used to look into the payment history of an individual or organisation and takes into consideration outstanding and repaid credit accounts. The credit report states whether repayments were made and whether they were on time and in full.
If you’ve missed payments or paid them after they were due, most high street lenders will be unwilling to lend. This is true for both business finances and your personal finances.
Lenders look at the personal financial situation of shareholders and directors to gain an understanding of how the controllers of the business conduct their finances.
What Can You Do?
If you’re struggling to secure a business loan from your bank, there are a number of other options out there for you. Often, our alternative lenders will offer much better terms than our clients are able to secure from their own bank and can act much faster.
If you’re looking to secure a business loan and want access to the lowest rates in the market, our experts are on hand and ready to help.