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Am I eligible for a business loan?
What is the criteria for a business loan?
Business loans offer flexible financing and can be carefully tailored towards your individual business circumstances, but it’s important to understand the eligibility criteria of lenders before applying.
If you’re rejected for a loan or apply for too many loans in a short period it can damage your business’s credit rating. A good credit score is one of the key criteria for financiers so it’s worthwhile considering this and other elements of your business when researching business loans.
What do commercial lenders consider before sanctioning a business loan?
Business age and trading history
The age of your business is important to lenders as the older it is, the more information they have available to determine their risk level. A relatively well-established business – around two years old or more – may offer the lender a trading history that fully supports a loan application whereas a younger business can only provide limited evidence of its viability.
Business credit score
Lenders also rely on a business’s credit score when considering an application for borrowing, so presenting a financially responsible company is key. They’ll look for missed repayments on existing or previous borrowing, over-reliance on credit, and arrears of utilities or other operational expenses. Having little or no credit history can also damage the chances of securing a business loan as financiers have nothing to help them determine their risk in lending.
Revenue
Your business income is a vital element in securing the level of financing you’re looking for as it underpins your ability to repay. Commercial lenders will use your annual revenue as a baseline but your net operating income - total income minus operating expenses – also shows how reliably the business will be able to manage the loan repayments.
Business sector
Some sectors experience specific financial challenges, such as late payments that are problematic for construction companies. This means that the sector your business operates in can influence a lender’s decision - in terms of whether to sanction a loan and the level of lending/beneficial terms they’re willing to offer.
Business assets
If your business owns an asset of value a lender may offer you a secured business loan using the asset as collateral. This lowers their risk, as they’re able to repossess the asset if you default in the future.
How to improve your eligibility for a business loan
- Put forward a strong business plan that clearly shows that cash flow can support the repayments
- Present a business that’s financially responsible and stable - one that can repay without issue, but also that has up-to-date filed accounts and tax payments
- Complete paperwork accurately and deliver it quickly when it’s requested by lenders
- Improve your business’s online profile if appropriate as financiers commonly review their risk by checking a business’s presence online, including customer reviews and feedback
UK Business Finance are commercial finance brokers with a wealth of knowledge on business funding. We know the eligibility criteria of all financiers in the UK and will ensure you stand the best chance of success with any application.
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Matt Cluer
Finance Expert
Matthew has over 15 years’ experience of working alongside businesses across the UK supporting directors, shareholders, and key stakeholders. At UKBF Matthew works tirelessly to secure the funding companies need when they need it. Adept at raising finance through invoice and asset-based lending, crowdfunding, loan and equity funds as well as Government schemes, Matthew is perfectly placed to help your business access the funding required whether for general working capital, or to embark upon an ambitious growth and expansion project.
Top Finance Tips
We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
Why use a commercial finance broker?
A commercial finance broker plays an important role for businesses looking for funding. They can source the most suitable types of finance using a whole-of-market search strategy whilst also accessing the best deals and lenders.
What are cash flow forecasts and why are these important when obtaining business funding?
Operating with positive cash flow helps your business to pay its bills, conduct day-to-day trade with minimal issues, and plan confidently for the months and years ahead. But how do you know that there will be sufficient cash available when it’s needed?
Good debt vs Bad debt
Managed well, debt can improve your credit rating, enable expansion, and stabilise cash flow. It’s the backbone of growth but with so many different types of borrowing now available, it’s important for your business to carry ‘good debt’ rather than ‘bad debt.’
How to best prepare my company for a finance application
When preparing your company for a finance application, it’s key to present the business in its best light whilst also providing realistic projections, your plans for the funding, and how it will help the business grow.