7 Obstacles to a Successful Loan
Managing Director + Co-Founder
Whether you’re a business looking for some funding or an individual who needs a quick cash injection, loans are a dependable solution to your financial problems. However, there are several factors that can affect whether your loan application will be accepted. To ensure you’re fully prepared, here are 7 things that may prevent a lender accepting your application.
A Bad Credit Score
It goes without saying that if your credit score is too low, you’re less likely to get a loan. Even if you’re applying for a business loan, your personal credit score can come into it. It’s difficult to know what the ‘correct’ credit sore will be, as this is dependent on the lender and the type of loan. However, a ‘good’ score is usually around 881-960, and a ‘fair’ score is 721-880.
To check your credit score for free, visit Experian. If your credit score could do with improving, simple fixes such as getting on the electoral roll or using a credit card regularly could help.
You’ve Declared Bankruptcy in the Past
Similar to having a low credit score, a history with bankruptcy will not stand you in good stead. Bankruptcy is something you have to declare when you can’t pay your loans off, this usually last for around a year and the money you owe is usually written off. But even when you’re no longer bankrupt, you could have a bankruptcy restriction order made against you.
These orders significantly restrict your financial affairs and make it unlikely you’ll be accepted for a loan. Bankruptcy restriction orders can also last up to 15 years. Even without the order, certain lenders may refuse your loan due to your history. To combat this, certain loans are designed for people with a poor financial past, so look for bad credit history loans.
You’ve Received County Court Judgements in the Past
A CCJ can be issues against your name if you fail to repay a debt in time. This comes after a warning later, so if a borrower receives a CCJ it suggests a lack of trustworthiness when it comes to finances. A CCJ can stay on your credit report for up to six years if not paid off within 30 days of receiving it, making it unlikely you’ll receive a loan in the foreseeable future. If this applies to you, CCJ loans are purposefully designed to help borrowers in this situation.
Your Business is New
If you have a business which is brand new, or just a few years in, this could affect the likelihood of you receiving a loan. To qualify for a business loan, you need to have built up a good enough credit history. Again, it’s difficult to know the right amount of time to be operating for as this will differ depending on lenders. The best way around this is looking for a lender which doesn’t require a long business transaction history.
A Lack of Collateral
Whether you’re applying for a personal or a business loan, having collateral is a must. This is something that you pledge as security for the repayment of a loan and can include the likes of property or assets. If you haven’t got anything to secure, lenders are less likely to trust you. However, if you don’t have any collateral for a secured business loan, unsecured business loans are intended for those who are not homeowners. Bear in mind, this type of loan is only eligible for business that have been trading for up to 4 months.
No Evidence of Strong Cash flow
Similar to collateral, your business’ cash flow is evidence of whether you are likely to repay the loan. You’ll need to prove that you have enough cash flow to repay the loan while keeping your business in check and covering everyday expenses. If your cash flow appears irregular, it may affect your chances of getting a business loan. To combat this, closely examine your cash flow reports and projections and ensure to chase invoices before they reach the 60-day mark.
An Incomplete or Incorrect Application
Finally, a faulty application will also affect your chance of success in a loan application. While application forms may seem tedious, if enough information isn’t provided or questions are answered incorrectly, they will be rejected. Ensure you are thorough and honest with your application, as lenders often verify the details if something appears inconsistent.
In general, if applying for a business loan, supporting documents may include:
- A business plan
- Personal tax returns
- Business bank account statements
- Personal and business credit reports
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