Bank has rejected me for a business loan – what are my options?

What to do if your limited company has been rejected a loan

If your bank has rejected your application for a business loan, the first step is to understand the reason behind their refusal. It’s also important to know there are many alternatives to bank loans that can generate the funding you need.

The financial products now available to UK businesses offer valuable flexibility and speedy access in many cases. They use different aspects of your business to generate funding, such as your asset holding or the value of your future card sales.

Firstly, though, discovering the reason why the bank refused your loan application – perhaps because of a poor credit rating or a limited trading history – can lead you to a more suitable type of financing.

What are my options following a loan application rejection?

Invoice finance

Invoice finance provides regular cash inputs based on the value of your unpaid invoices and isn’t reliant on the business having a good credit score. Instead, lenders focus on the creditworthiness of your customers when assessing an application and decisions are led by the strength of your sales ledger.

In brief, you can receive around 80-90 per cent of an eligible unpaid invoice from the financier within 24 hours of issue. If you choose factoring rather than invoice discounting, you can also hand over management of your payment collection processes to the lender.

Asset finance

If your business owns one or more assets, you can leverage their value by putting them forward to a financier as security. Similarly, a new asset that you want to purchase, such as a piece of machinery, equipment, or a vehicle, can be used by the lender as security for a loan.

In both instances, it considerably reduces the lender’s risk as they can repossess the asset if your business cannot afford the repayments. Asset finance is a strong alternative when a business loan application has been declined as the repayments and term are both fixed under a hire purchase agreement or a leasing contract.

Revolving credit

A revolving credit facility provides cash when you need it in a similar way to a business bank overdraft. It’s short-term funding that could offer a flexible alternative to a business bank loan.

You’re only charged interest on the amount you use and can repay and reuse the facility as often as you need within the parameters of the agreement. A revolving credit facility may provide more flexibility and greater lending amounts than a bank overdraft and is typically obtained from specialist lenders.

What should I do first if my bank has declined my business loan application?

You should seek professional support before applying for any further types of finance, as too many loan applications and refusals will seriously harm your business credit rating. UK Business Finance is an established commercial finance brokerage with extensive industry-wide experience and can help you find the right form of funding.

Please contact the UK Business Finance team to find out more about how we can help.