3 min read
We want our small business loans to be transparent, including the reason (or reasons) we sometimes have to decline applications. So you’re not left wondering, here are seven of the most common reasons we might not be able to say yes, just yet.
We base our decision to offer you a loan on your business circumstances and performance. We look at the bank statements, VAT returns and company accounts you upload. And we see your background when we run a credit and identity check.
If we turn down your application, it’s because one or more of those checks suggest you might be a high credit risk or could struggle to repay the loan. There may also not be enough information – for example, if you’ve been trading for less than two years.
We only offer loans to sole-traders, partnerships or limited companies who are actively trading and solvent. How much you’re turning over factors into how much we can offer you, too. If your company is registered with Companies House but not trading, HMRC considers it dormant or inactive.
This means we can’t work out how much to lend you or whether the payments would be affordable.
If you’re late filing your business returns with Companies House, we won’t have the most up-to-date information to work with, which means we can’t confidently offer you a loan that suits your situation. Overdue accounts could also indicate problems with company management.
We’re not just interested in when you file your accounts – smaller details matter too. If any issues jump out in your filing history (related to your shares, directors’ details, confirmation statement or something else), it could lower your chances of approval. For example, if there are no active directors listed for the company on Companies House, we won’t be able to go ahead with your application.
If you’ve borrowed from us before, we’ll look at your repayment history when making a decision. If you’ve struggled to stay on top of repayments, it could be unwise to give you another loan. We might also turn down new applications until your previous loans are settled and your cash flow is more stable.
Credit reference agencies summarise your business’s financial health by combining lots of factors into a score, usually ranging from 0 to 100. Your score can be lowered by paying suppliers and bills late, getting County Court Judgments (CCJs) and having not repaid debt in the past.
According to Experian, a score below 50 means you’re above average risk, whereas 80-100 means you’re low or very low risk. We use business credit scores as a guide when assessing applications, so it’s worth checking yours and, if possible, improving it. You can also use our own Business Credit Health Check to learn more about your company’s financial health.
Your personal credit history plays a part in our assessment of your application, too, especially if your business hasn’t been around for very long. This is because our unsecured loan requires a personal guarantee.
If you don’t know your personal credit score, it’s worth checking with one or more of the three main credit reference agencies, Experian, Equifax and TransUnion. If the main applicant has a low personal credit score caused by an unresolved CCJ, bankruptcy, late mortgage payments, or just a thin credit history, it could suggest similar problems when handling credit for your business.
The company you’re seeking a loan for might be doing well, but if you’re a director of one or more other businesses (or several) that are struggling, it could affect your application. That’s because you’re a common factor between the companies and your failures or successes could affect any of them, now or in the future.
When we check loan applications, we look at the credit file of the director who’s applying (the main applicant) and any guarantors. If the main applicant or additional guarantors have poor credit, it could lower your chance of approval. But credit scores aren’t fixed – they can be gradually improved by paying bills on time, getting debt under control and making other changes.
Nothing’s set in stone, especially when running a business. So if you aren’t eligible for a loan from us now, it doesn’t mean you won’t be in the future. Give us a call on 020 3778 0274 if you'd like us to take another look at your business after a few months and we’ll be happy to see what we can do.
This article was created by the Insights team at iwoca.
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