Does your business qualify for a business loan?

Few businesses can be completely self-reliant for funding – especially in the early years of operation. Therefore, most businesses have to, at one point or another, look for ways of financing. A business loan is perhaps the easiest and most affordable financing tool for UK businesses of all sizes. Such loans also carry a conclusive set of advantages over personal loans.

But are business loans available to all businesses? What criteria are used by lenders to assess business loan applications? Does your business qualify for a business loan?

Typical Eligibility Criteria for Business Loans

While there are no definitive eligibility criteria that will automatically qualify your business to get a business loan, most lenders do follow a certain set of rules of thumb. Below are some of the key eligibility criteria most lenders follow: *

The Nature of Your Business

This is the first thing any lender will look at while assessing business loan applications. Businesses with well-established, consistency-backed revenue models usually find it easier to get a business loan. On the other hand, businesses with an unproven and volatile revenue model may face difficulties in finding willing lenders. For most parts, this is subject to the lender’s discretion, experience and expertise.

For example, a local landscaping business can more easily secure a business loan than a tech start-up based on a never-heard-of-before idea.

Annual Turnover and Profits

A profitable business, needless to say, will always find lenders to borrow from. This is an important factor because lenders usually fix the loan amount cap to a certain percentage (25 to 30%, in most cases) of the average annual turnover.

If your business has managed to score a good deal of revenue percentage as profits, you can also find lenders willing to increase the loan amount cap.

Trading History

This is another important factor that almost every lender will look at. If your business has been trading for a period over 24 months, you’ll certainly find many lenders interested in your business loan application.

Conversely, if your business is younger than two years, we can still find you a suitable lender, but you may well have to settle for lower loan amounts and shorter repayment terms.

Accounts History

As an extension of the trading history, history of filed accounts becomes important. A well-established history of filed accounts lets lenders gauge the profitability and potential of the business, while also removing the need to look closely into company’s registration details.

Credit Health

Just like people, businesses do generate credit history over the years. If the business is in good standing in terms of credit score, lenders feel little need to assess other factors such as the revenue model or the potential of the business. This makes it exponentially easier for them to accept such business loan proposals. It’s worth noting, however, that it’s still possible to get a business loan despite bad credit .

A history of delayed repayments, defaults or outstanding County Court Judgments (CCJs) in connection with loans make borrowing a difficult prospect for businesses. Please visit this page to read in greater details how any outstanding CCJs can greatly affect the creditworthiness of your business. You may also visit this page to quickly check whether there exist any CCJs against your business.

Assets

While unsecured business loans are popular, most business loans still require the borrower to attach an asset as a security. If your business can afford to do so, it becomes much easier to find lenders ready to accept your business loan proposal.

*Please note that qualifying on these criteria may not always result into your business loan application being approved.

Checklist to See if Your Business Qualifies for a Business Loan

Please refer to the following checklist to quickly judge whether your business has a good chance of getting a business loan:

• ✓ Business physically located in the UK
• ✓ Adequate annual turnover and profits
• ✓ Dedicated business bank account
• ✓ Filed accounts
• ✓ Trading for the past 24 months
• × Outstanding loans
• × CCJs
• × History of defaults