Getting turned down for finance, whether it’s a personal loan, credit card application or business loan, it’s never pleasant.
You might feel that you’ve reached the end of the road and there are few options left open to you. But you’d be wrong.
If you get turned down for a business loan or finance, there are things that you can do to remedy the situation. First off, you should find out why you were refused and try to repair the damage so that you can take advantage of loans or credit in the future.
- Talk to your lender
- Understand credit scoring
- Ways to fix your score
- Funding options – talk to a specialist
Talk to your lender
If you get rejected for a loan or finance application, check with the lender and ask them which credit reference agency they used e.g. Experian or Equifax. You can then ask the agency for a copy of your credit file. Ask what it was on your file that prompted the negative decision.
Check your file for errors and make sure you get any mistakes corrected as soon as possible.
Your business may have had a CCJ or a statutory demand in the past. These will show up on your credit records and will have an impact on your creditworthiness and ability to get credit in the future. Generally, lenders will consider as long as you have settled any CCJs.
Other things that can hit your credit record include;
- Your market or industry may be perceived as too risky.
- Your cashflow is not strong enough.
Don’t keep applying for credit. Each time you apply, lenders will check your credit file and these checks will show up as hard checks on your credit history. The more of these there are, lenders will conclude that you have been turned down for finance on numerous applications. Getting rejected for credit doesn’t harm your credit score but the hard checks that show up on your credit file can.
Most lenders will also carry out a ‘soft check’ which doesn’t show up but gives and indication of if they might be able to lend to your business.
Another reason you could get turned for a loan is if your business plan is not up to scratch. A good plan will show potential lenders that your business is a good risk. Talk to an expert about creating a winning business plan that will help you to secure the finance that you need.
Get the right lender for you. Banks, particularly the big high street lenders, have low approval rates. You might be better off looking for alternative sources of funding such as peer-to-peer lenders, asset-based lenders or invoice discounters.
You could look at a secured loan. This is where repayment of the loan is secured against your business assets such as plant, machinery or property.
Credit scoring
When you apply for a loan your lender will apply to a credit reference agency such as Equifax or Experian for a check on not only your business but also your personal credit worthiness. This is a numeric value calculated using various criteria. The higher your credit score is the more likely you are to get your funding.
The credit reference agencies receive data from lenders which will include information on how you have managed previous loans, county court judgements, winding up orders, financial performance, and company directors’ history.
Credit reports are held on file for a period of six years and are updated on a monthly basis. Numerical scales vary between reference agencies: The Equifax scale runs from 0-700 where a score of less than 600 is considered poor and anything between 650-700 is fair to good.
Experian’s scale is 0-999. If your score is 720 or above, then it’s very solid. Anything between 640 and 700 is good but go below 640 and that is considered poor and you may need to consider alternative sources of finance for your business.
Before you apply anywhere for finance it’s a good idea to check your credit score. You can apply to one of the credit reference agencies to find out.
How to fix your credit score
Make sure you check your credit rating regularly and ensure that you address any errors on your records as quickly as possible.
Pay your bills promptly and maintain any credit payments – late payment will affect your credit score, more so if lenders have to take legal action against you to recover late payments.
Develop good credit relationships with your suppliers and maintain payments. This will have a positive effect on your credit score.
Keep credit accounts open, even if you have paid them off. Having no credit history makes it hard for lenders to judge risk, which will also have a negative effect on your credit score. Having some credit will help you take on more but don’t overstretch yourself.
Maintain regular payments and avoid legal action and county court judgements like the plague. If limited credit history was reason you were rejected for a business loan, then you need to try and build it so avoid rejection in the future.
How do I know which is the best funding option for my business?
Because the range of funding options and the processes to apply for them can be immensely complex it’s a good idea to talk to experts who can guide you to the best funding option for your business goals.
A good broker or intermediary doesn’t just help with funding, finance and investments. They will also get involved in business planning and credit management too.
To find out more about business loans call one of our experts today on 0203 327 0567. We have access to over 600 sources of funding, covering debt and equity. We’re confident we know how investors work and what they are looking for.