What lenders will look for when determining a funding decision
Managing Director + Co-Founder
With more and more B2B lenders entering the finance industry with different requirements and criteria, it can be difficult to understand where to go. Although lenders may have different criteria, the way their underwriting works is almost always the same. When looking to determine whether to approve your funding for a business loan or not, lenders must feel sure that you are in a position where you’ll be able to pay the funds back on the agreed dates. They look out for the following when making their final decision:
Can you make the repayments?
The number one factor every lender will look for is ‘will the client be able to afford the loan repayments’? By looking at the cash flow of the business over the last few months an underwriter will be able to see if a business can make them repayments. When applying for finance, make sure that you can afford these repayments (speak to a broker to see what repayments may look like), without crippling your businesses cash flow.
An Overview of the Financials
Every client looking to secure business funding will need to present a set of financials. Providing a lender with your financial history offers them an insight into how financially stable you or your business are and helps them make a more informed decision. Most lenders will look for Accounts and Bank Statements, however some will look for more, including VAT’S and managements. Be sure to have these to hand when applying for finance.
Certain loans for business – trade finance, for example – focus on a business’s assets more than their cash-flow. This can help businesses get loans even if they don’t have great credit. Lenders will balance the risk you pose with the value of your assets. It’s important to note that if you fail on your payments you are at risk of losing what you have secured the loan against. For this kind of loan, you’ll need to provide documents proving you own the asset you plan to secure the loan with.
Every lender will be looking for security, whether that’s from a Personal Guarantee or a charge on property/assets. When applying for a loan be prepared to offer some kind of security, as this is mandatory on 99% of loans within the UK. Lenders will look into all the available security they can find on a business and its director, making a decision thereafter.
A Personal Guarantee gives tenants and homeowners the benefit of securing a loan without a fixed charge on an asset. Personal Guarantees are most commonly required for unsecured business loans as these are not secured against personal or business assets.
When applying for any type of loan a personal and business credit search is performed. This is to provide lenders an overview of who they are actually lending to. If you have any CCJ’s, liquidated companies, or any adverse credit in general, this can affect your application. However, don’t think this means you can’t get credit – there are several lenders in the market that will still consider offering financial agreements companies with bad credit.
In cases where you have an historic CCJ that has been resolved without complications at the time, lenders may review the application and decide that they will give you a chance. This is especially true if you have now turned your financial situation around and have a thriving business.
Make sure you have gone through each of the above sections before applying for a loan. If you still need help determining whether you would qualify for a loan, please contact us and we can discuss this further, 01371 870815.
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