Banks often have strict credit criteria that can make it more difficult for less established businesses to access funding. The below provides a rough guide on what different lenders consider, and what lenders expect in order to provide you with funding:
If you have incorporated your business, having filed two sets of accounts really helps to secure funding – so it is likely that a company has been established for almost three years.
Banks typically want to see consistent profitability for the last 12-24 months and will often ask for management accounts and filed accounts to see how the business has performed. A business plan often may be required, particularly if you’re looking to borrow more than £25k
Good management of your business current account is important – having payments rejected for insufficient funds or accessing an unauthorised overdraft may stop banks from providing funding.
Managing your personal and your business’ credit is critical to access bank funding. Banks are typically looking for a good personal credit score as well as a decent business credit score. Having a Country Court Judgment (CCJ) or a default is typically a reason to decline funding.
Some lenders are often specifically focused on supporting younger businesses – typically once you are trading for six months. You can also try Start up Loans Company to apply for a government supported loan of up to £25k.
Alternative lenders are often more focused on your trajectory – profitability definitely helps but is not a ‘must have’. For loans below £20k you may not need a lot of documentation. Providing Bank and VAT statements is typically sufficient for loans up to £100k.
Many alternative lenders are more forgiving than banks – but demonstrating good management of your accounts will always help you access funding and attain better rates.
Alternative lenders have products and solutions that can fit even if you don’t have a perfect credit record. Though it is always worth trying to iron-out blemishes as it will make it easier and less expensive for you when you access funding.
Traditionally bank finance has been considered less expensive than most other sources of funding. So most businesses would have first checked if bank funding is available and only accessed non-bank solutions if bank funding was not available. This has changed in recent years. Today there are many competitive sources of non-bank finance that provide flexible finance and can be accessed quickly. However, to access longer-term funding, lenders often have strict standards, similar to banks’ – so less established businesses often access short-term facilities until they have established a strong trading and credit track record. What Terms you can expect:
Cost – Representative APR is typically less than 10%, however costs for an overdraft can go up to 30% and fees may also be charged
Terms – Banks provide flexible overdrafts – but often only to more established businesses. Loans are typically longer term finance up to 5 years
Repayments – Overdrafts incur monthly charges for the use of the line, for loans typically fixed over the term of the loan
Security – Personal guarantees required and other security, often based on your property typically required for borrowing >£25k
Cost – A broad range from 46% to 49% depending on the product type and your circumstances
Terms – Younger businesses are often accessing shorter-term solutions over 1 or 2 years, however longer terms are available from some lenders once the business is more established
Repayments – There is significant diversity of products – repayments can mirror your earning, can be fixed and flexible, and there are ever balloon-payments where a loan is repaid at the end of the loan agreement
– Personal guarantees typically required for most loans. Other security more likely above £100k
You may be pre-approved by your bank for an overdraft or loan – that could be the quickest way to access funding. If not, the process can take a few weeks. Most non-bank lenders have processes in place to make a decision within 2-3 days after you submit a full application – and some lenders offer instant decisions. What you will need to apply for funding
Overdrafts/Flexible credit lines
A bank may offer you an overdraft as part of a business current account if you are eligible. Overdraft facilities may not be available until you have established a trading track record. Many banks also expect you to have had a current account for at least 6 months until they offer an overdraft.
The loan application process with your bank can take 6 to 12 weeks for secured facilities or 1-10 days for unsecured facilities. Expect to need to provide management accounts and a business plan to support funding over £25k
Overdrafts/Flexible credit lines
Funding is not tied to a business bank account, although you are still need to provide 3-6 months of bank statements as part of the assessment if you’re looking for >£25k. Some lenders can provide you with funding within hours of making your application, although 2 to 3 days is a more typical expectation.
Non-bank finance providers can move quickly and provide loans, even of £100k or more within a few days. Do expect to need to provide up to 12 months of bank statement information