What lenders look for in a business loan application

How to improve your chances of a securing a loan for your company

Knowing what lenders look for in a business loan application helps you present your business in the best light – an important consideration, as being rejected for a loan damages your company’s credit rating and makes it difficult to borrow in the future.

But what do lenders need before sanctioning a loan? Criteria can differ between lenders, but there are common requirements that apply across the board, including your business’s trading history and creditworthiness.

What lenders look for when your business applies for a loan

Creditworthiness

A key factor is your credit history - a good history of repayment can expand your options and reduce overall borrowing costs. This is because a positive repayment history reassures lenders and suggests that your business doesn’t pose a serious risk of default. It’s not only the business’s credit score that’s a factor here, though. Your personal credit rating may also influence their decision, particularly if you have limited trading history.

Trading history

Established businesses can demonstrate the trading history lenders require to support a loan application - they’re looking for a clear track record of financial stability. Younger businesses, on the other hand, can struggle in this respect and may be offered lower start-up loan amounts and/or higher interest rates.

Existing debt and credit levels

Lenders also look at current debt levels and lines of credit when assessing a business loan application. This existing commitment to pay off debt is important as it directly affects your ability to cover any new borrowing.

Business financial health

Your financial statements and tax returns feed vital information into the lender’s loan sanctioning procedures. They identify where cash flow may have been a problem in the past, and how you’ve dealt with it, but they also predict likely future cash flows and profits.

Availability of security

Providing security for a loan reduces the lender’s risk as they can repossess the asset if you default. A secured loan may be easier to obtain, but it does introduce the threat of losing the asset if business takes a downturn.

If no collateral is provided, lenders are likely to seek a personal guarantee from you as director and may require you to sign a personal guarantee as well as provide an asset in some instances.

Industry

The industry you operate in is also important to lenders as some, such as construction, naturally carry more risk. Automotive may also be considered high risk by lenders due to the current transition to electric vehicles.

How to make a successful business loan application

Applying for a business loan can be a daunting prospect given the huge potential for growth that funding provides. UK Business Finance is an established commercial finance brokerage with extensive experience of making successful loan applications on behalf of our clients.

For more information and tailored guidance on what lenders might look for in your business loan application, please get in touch with one of our team. We’ll ensure your application stands up to lender scrutiny and guide you towards the most suitable types of funding.