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Refused Business Finance

Whether you are a new start or rapidly growing business or whether you are looking to restructure or acquire another business, the UK economy needs businesses like yours to continue to innovate, create jobs and grow.

You will need a constant supply of cash to support your ambitions, so if your business has been refused finance, this may:

• impact on your future ability to trade; or

• will adversely affect any further borrowing applications and will remain on your company credit file.

If you have a new business and you have zero credit history, it can also be difficult to apply successfully for credit. The financial crisis of 2007/8 has had a negative effect on these applications.

In terms of making a successful application for credit for a new business, the whole result depends on the level of risk that a lender sees. These can only be accumulated in the way of figures and a good track record of trading. Without a financial history, your business loan application will be viewed as a risky venture and will probably be refused as a result.

There are many different types of finance available each of them designed to meet different needs. The key to your future success is to ensure that you have access to the right funding solution to meet your business cash flow requirements. The first step is to understand precisely how much cash you need to run your business day to day, week to week and month to month. Once you have mapped out your cash flow forecast you need to stress test this working document with various scenarios. When you’re happy with the forecast, this accompanied with your recent financial history will need to be presented in the right format to potential funders to take into consideration, it will be foolish for a lender to agree to your proposal without such information. Larger firms will have an advantage over smaller ones when it comes to making an application for credit. This is because they will have a better knowledge of finances and usually will have a finance team already in place. Smaller businesses will usually be required to stump up the finances themselves in terms of start-up operations (although this is not always the case). The most common reasons for a business to be refused any form of finance are as follows:

  • Adverse Information

    Banks and lenders may view your business as too large a risk because of certain negative issues. These may be in the form of a CCJ or perhaps they you have been refused credit before due to a lack of detail when making the original application for a loan.

  • Security shortfall

    Perhaps your business presents a risk and your lender asks for security either the company a (i.e. A fixed and floating charge or legal charge against the business and assets) and / or by Personal Guarantee from you, the director. This will usually be some form of collateral such as machinery or other valuable assets. Either type of security will need to be supported by usually be some form of collateral such as a freehold property, fixed plant & machinery or other valuable assets from the company (plus a personal guarantee from you). If you refuse to go down this route, then a refusal usually follows.

  • Serviceability

    If the bank or lender looks closely at your application and does not believe that you will be able to keep up with the agreement, they will probably say no. Perhaps they do not think that you are capable of making the repayments on time or maybe they see another reason to doubt your ability to honour the agreement.

  • Preparation Issues

    If your application is poorly presented and lacks the relevant information required, your bank or lender may well refuse. You should speak to an accountant to help prepare your application from the outset.

  • Time Frame Issues

    Perhaps you require the loan in a smaller time frame than the bank or lender is prepared to accommodate. This type of application will take some time and if you are in dire need of a swift cash injection, the chances are that you will be refused.

    There are nevertheless alternative methods of funding available at relatively short notice, however it's extremely important to be patient. It's not as quick a process as it once was due to the historical issues the banks have faced.

    Ultimately your business plan must have strong foundations and not be built on pipe dreams. The plan must show precisely when the lender will recover their money with as much evidence as possible to support your projections, after all the lender wants to get their money back (with interest) and banks generally don't like taking risks.

In terms of other business finance options, you could do worse than approach a recognised broker. Brokers will be able to assess how viable your business is as far as applying successfully for a loan is concerned. They will be able to approach more than one lender and can also offer objective advice every step of the way.

If time is of the essence, sometimes you may have to go for a specialist lender as opposed to a bank. The bank will usually have a lower rate of interest but a specialist lender, although more expensive, could be able to help in a shorter timeframe.

You may also want to look into crowd funding options if you have a start-up business and these are also a viable option for more established concerns. We'd recommend that you come and speak to us for an objective view on your current situation because our professionals at My Invoice Finance and My Insolvency are always on hand to help you and your business.