Eligibility & Criteria

There are many things that lenders consider when you apply for a business loan, including your credit rating and filed accounts

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There are a few basic things that every lender will want to know when you apply for a business loan. You can expect to be asked about your current business performance, historic performance, any late payments, and standard documents like bank statements and filed accounts.

It’s important to note that these factors will have varying levels of importance for different lenders. One lender might want to see strong profits, while another might place more emphasis on a clean payment history. The bottom line is that all of these things add up to the bigger picture — and there isn’t just one thing that leads to a ‘yes’ when you apply for a business loan.

Business performance

Naturally, if you’re asking to borrow money, lenders want to know how your business is currently performing. Are you bringing in strong revenues, making a loss, or somewhere in between?

The most common ‘fast track’ that lenders use to understand your situation is to ask about turnover and profit. The combination of these two simple numbers helps them understand exactly what’s going on with your firm, providing a helpful starting point for the rest of the conversation.

For example, a high turnover might make it seem like you can borrow a large amount of money. But if that high turnover is cancelled out by high operating costs and your profits are low, then your affordability is actually a lot lower than your turnover initially suggests.

Affordability

Affordability is an important consideration for business loan providers. Many of them compare the requested loan amount to your turnover to determine what level of repayment you can afford — and will lend ‘up to 20% of annual turnover’, for example.

Lenders do this because it’s a simple way of ensuring you can afford to repay. For example, if you’re making £10,000 per month in revenue and want to borrow £50,000, the monthly payment will be higher than you can comfortably repay, whereas £15,000 should be much more manageable.

Paperwork

Once you’ve spoken to the lender about your current business performance and affordability, they’ll want to see documentary proof. Different lenders will have different requirements, but you should expect to be asked for the last three months’ bank statements and your most recent filed accounts.

These will help lenders complete the picture of your business’s financial health, and having them prepared in advance will give you the best chance of securing a business loan quickly.

Trading history

Many lenders want to know about your track record, and won’t offer loans to businesses with less than 2 years trading history. More generally, they’ll want to know about your trading history to see how it compares with the present.

Is your business on an upward or downward trajectory? Or has it consistently performed at the same level? Your trading history gives context to the numbers in your bank statements and filed accounts. But overall, with a shorter trading history the lender simply has less data to base their decision on.

Payment history

It’s useful to remember that when you apply for a business loan, you’re agreeing to pay money back over a period of months or years. For this reason, lenders want to know about your previous payment history.

County Court Judgments (CCJs) and winding orders show that someone has taken legal action against your firm in the past because of late payment — so if you have any in your history, you’ll need to explain them. Lenders will also look at credit ratings, both business and personal, when assessing your application for a business loan.

However, it’s often still possible to get a business loan with a CCJ in your past. So don’t try to hide anything, and be honest with the lender, and you might be surprised by the options still available.

Lenders will also look at credit ratings — both business and personal — when assessing your application for a business loan.

Summary

When you’re applying for a business loan, expect to be asked about turnover and profit, bank statements, filed accounts, loan amount vs. turnover, trading history, payment history (late payments, CCJs, etc.)

There are no set standard criteria for business loans, but there are a few things to consider before you apply for a loan, namely that: the loan amount is less than 25% of your annual turnover, you are profitable, you have more than 2 years of trading history, no outstanding CCJs or late payments, and your business is UK-based

All these things will help the lender you’re applying with get a better picture of your business and allow them to better predict your success with paying back the loan in the future. Ideally, lenders won’t lend more than between 10 and 20 % of your annual turnover. For shorter trading histories (under 2 years) and not demonstrating a large profit or loss, it will be more of a challenge to get a loan as well. There are no shortage of alternative finance in the marketplace today, so you may be surprised to find what is available to your business besides the more rigid high street bank application process.

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