Businesses seeking funding of more than £25,000

Larger amounts of funding are not available to every business from banks or other lenders as they have a consistent goal, which is to only lend to you if you can afford the repayments.

Banks & other lenders have a series of rules designed to test whether you can afford the debt you’ve applied for.

Speaking generally, here’s what lenders want to see to make an offer of funding of £25k or more:

  • Turnover of £100k+
  • A track record, ideally 24+ months of trading history
  • A positive business credit score
  • You resolve any issues on your personal credit score

It also helps to be able to demonstrate that your business is well organised and looks professional, so it is a good idea to:

  • Run your business through a business bank account
  • Have well maintained management accounts
  • Pay suppliers on time
  • Claim any Research and Development (R&D) Tax credits owed
  • Ensure HMRC obligations are up to date

These rules can seem a bit arbitrary, and some lenders may be more willing than other to take more risks in certain areas. But that’s the kind of business profile most mainstream lenders want to see. So why are these important and what can you do now to achieve them? Here’s what to focus on:

As a rough rule of thumb, lenders are typically able to offer credit worthy businesses around 10% or 15% of turnover. This gives banks and lenders confidence that your business can invest in inventory or manufacturing costs, pay any employees, pay you what you need to support your own life and make the repayments on the loan.

If your business is growing well and profitable then lenders look on this favourably and might offer you up to a slightly higher percentage of your turnover.

For amounts of £25,000 and more lenders will typically offer terms from 12 up to 60 months (though a bank may offer longer) for repayment and consider each business’ ability to repay over this time period. The term that businesses are offered is generally longer for the profitable businesses with a strong track record and shorter if otherwise. Banks and asset finance lenders may also offer longer terms for the purchase of an asset (e.g. machinery or equipment) and align the term with the expected lifespan of the asset.

Act Now: If your turnover isn’t meeting these criteria, but you need to borrow to grow then it might be worth considering other possible sources of money. Read our guide to alternative financing options if you want to find out more.

Funding Xchange

There are very limited options for £25,000+ borrowing for young companies, only those with a stellar starting record and the strongest business plan are likely to be successful. Smaller amounts of funding might be available if this can meet your needs however.

Banks and lenders look for a good track record in making lending decisions for larger amounts of funding. Simply having ‘survived’ those first years and having built up an assessable profile through filing accounts at Companies House, or through business performance information available in your management accounts or bank accounts (see below).

Act Now: You can’t speed up the passage of time, but you can use your early months to professionalise your new business and make sure you’re in a good position to apply for credit later. And, again if you simply can’t wait then there are other options you can try. Read our guide to alternative financing options if you want to find out more.

Funding Xchange

Just like with lending to an individual, banks and lenders want to see a credit history for registered companies that gives them confidence your company can and will repay a business loan.

So if you’ve been declined for lending and you want to understand why, or if you are planning to apply for lending and want to improve your chances, then taking a good look at your company credit file is an important step.

There may be small issues that are actually really easy to resolve. Perhaps you have a CCJ in your company’s history, perhaps you even feel you had a perfectly good reason for not settling a debt but now it’s on your credit file for six years.

Checking for those kinds of credit blemishes and settling them (even if that feels frustrating!) is key to becoming a customer that lenders want.

Otherwise, that damaging information sits on your history for six years and can make it harder, more expensive or even impossible to qualify for lending.

If your credit score is less than perfect then don’t despair, you may still be able to get business funding. But any steps you can take to improve your score will help.

Act Now: Check your company’s credit score and see what actions you can take to polish your record. Lenders are also likely to look at the personal credit score of any company directors too (see below).

You should also be aware that failing to file your company accounts on time can have a really significant impact on your score so stay on top of your paperwork!

Funding Xchange

Potential lenders are also likely to look at the business owner’s own credit history.

So, take a close look at your own history and see if you can make it stronger. If you’ve never really used personal credit and need to improve your score then there can be really easy wins, like registering to vote or using a credit builder credit card.

Act Now: Until you look at your personal credit file, you might not be aware of what’s on it. Get the data and see what you need to do to resolve anything outstanding.

Funding Xchange

There are number of other steps you can take to improve the view of your business through a lender’s eyes including:

Operating with a separate business current account to any personal accounts is absolutely key to showing potential lenders that you are a responsible and professional. It also helps the bank understand how you run your business.

Act Now: This is one of the simplest actions you can take: find a business bank account that suits you and open one. Moving your money management into a bank account can actually be a relief as it separates your own finances from your business and makes both easier to manage.

Banks and Lenders will often want to see your management accounts to assess whether loan repayments are affordable and so keeping these up to date, well maintained and accurate ensures you are in good shape to borrow at any time.

You might employ an accountant to keep on top of this financial administration, but there are also a number of accounting software platforms that you can use for this too and which can give you an accurate snapshot of your business at any time, helping you not only be ready to find funding, but to spot any potential risks and opportunities in your cash flow as well.

Act Now: Consider how the management account information you have today reflects on your business, if it isn’t in as good shape as it could be make sure you’re bringing things up to date on a regular basis and evaluate whether employing an accountant or using an accounting platform would help you with this. Taking these steps can also remove a burden from how your business operates giving you more time to run your business.

A fundable business has a track record of paying its suppliers and any other invoices on time. This shows you’re sensible with money and also that you have good structures and systems in place – so again, that you are a professional and safe business to lend to.

As your business grows and with so much to look after to keep it running smoothly, without good payments systems, it can be easier to overlook debts and pay late but missing invoices will cause real harm to your credit score, to your reputation with suppliers and to your chances that lenders will consider you.

Act Now: No matter what stage your business is at, make sure you pay your bills on time. Setting up good and reliable systems to pay invoices and other bills is essential to your long-term success.

If your business undertakes any form of Research and Development then you may be able to reclaim some tax paid (up to 33%) relative to the costs associated with that R&D. Those costs might include analysis costs, sub-contractor costs, development costs, and software licenses, among many others. Claiming the relevant tax back can of course boost your finances and therefore also make your business appear more fundable to banks and lenders as well.

If you want to grow your business with debt funding, then this is the moment to take stock of your business and where you can improve it or increase its professionalism.

Next, it’s important to understand the different financing options that might be available, especially if you can’t get more mainstream bank business lending.

Finally, when you are confident that your company is ready, it’s time to look for the right financing for your circumstances.

 

 

What if I am self-employed?

 

If you’re self-employed and have not incorporated your business, then while banks may consider applications for funding consistently with other registered companies, there is generally less information available for them to undertake assessments, and other lenders either don’t provide funding to self-employed businesses or have quite different risk assessment criteria for them. This means that outside of the banks, lenders are 4x as likely to fund companies that are registered with Companies House than those operating as a self-employed business.

When you are setting up your business therefore, or even if you’ve been trading for a number of years, you should consider incorporating as a limited company by registering with Companies House.

Many entrepreneurs begin as a self-employed business because that’s simply the easiest way to set up. But by the time you’re seeking funding, this can really put lenders off.

Registering your company does come with extra bookkeeping responsibilities and a very small annual cost but there are quite a few benefits for a growing company.

Act now: It takes just a few minutes to register with Companies House, just make sure you understand the extra obligations such as filing annual accounts.

Longer-term aims

By the time you’ve taken care of those short-term actions, your business will already be looking more polished and reassuring to lenders, so there are some easy wins there.
You can then do more to professionalise and grow your reputation. That will promote your long-term creditworthiness and will also help your business function better and more smoothly.
Many businesses are so busy growing and surviving the day-to-day challenges that they don’t pause to invest in their long-term financial prospects. But the difference between a surviving company and a thriving one could be the systems and support they set up early on.

In the longer term there are three key things that can help you grow, professionalise and attract future debt funding:

Funding Xchange

Invest in accounting

The value of good advice to a small and growing business is hard to exaggerate.

You’re the expert in your business but that doesn’t necessarily mean you’re an expert in accounts or business financial planning.

Enlisting an accountant, business advisor even a broker can help you decide if you’re ready for loan financing and how you can demonstrate that you’re a good potential customer.

A lot of those earlier tips on becoming fundable are easy wins that you can do yourself. But finding the right expert to compliment your own business knowledge can help you accelerate growth while staying focused on the things you’re good at
– managing your team and serving your customers.
You can often arrange a free consultation with an accountant in your area to discuss the options, benefits and costs. Try this list available through Enterprise Nation to see if there’s someone local to you.

Funding Xchange
Funding Xchange

Get the right advice

The value of good advice to a small and growing business is hard to exaggerate. You’re the expert in your business but that doesn’t necessarily mean you’re an expert in accounts or business financial planning.

Enlisting an accountant, business advisor even a broker can help you decide if you’re ready for loan financing and how you can demonstrate that you’re a good potential customer.

A lot of those earlier tips on becoming fundable are easy wins that you can do yourself. But finding the right expert to compliment your own business knowledge can help you accelerate growth while staying focused on the things you’re good at – managing your team and serving your customers.

You can often arrange a free consultation with an accountant in your area to discuss the options, benefits and costs.

Funding Xchange
Funding Xchange

Act now, benefit later

There’s lots here that businesses like yours can think about and hopefully some actions you can take to start building a much more fundable profile.

It may be the work of weeks, it may take a few years – it will depend on your individual business and on which areas you need to work on.

A business that can tighten up its processes, repairs any early mistakes and seeks the right advisers is going to do more than attract lending, it’s in a stronger position to really thrive and grow.

The really important thing to remember is that even if your business has been declined for funding, this does not mean a lender doesn’t believe that your business will be a success in the future. It just means you need to do a little bit more now to demonstrate exactly how much potential your company has.

Funding Xchange


Did you find the content in this page useful?


We are working with Lloyds Bank, to help you understand what banks and lenders are looking for when you are applying for finance. We want you to decide when you are ready to apply for finance and to do so successfully.

Privacy Policy

Complaints

Terms of Use

ABOUT
Copyright © 2021 FUNDINGXCHANGE LTD. All rights reserved. Reproduction in whole or in part without permission is prohibited.

FUNDINGXCHANGE LTD. – Office 9, Dalton House, 60 Windsor Avenue, London, SW19 2RR – Company Number: 09228134 – DPA: ZA093024

FUNDINGXCHANGE LTD. is authorised and regulated by the Financial Conduct Authority. Our Financial Services Register number is 685043.

You can check this on the Financial Services Register by visiting the FCA’s website www.fca.org.uk/register. FUNDINGXCHANGE LTD. is a Credit Broker and not a Lender, we do not provide advice or recommendations.

This site is protected by reCAPTCHA and the Google Privacy Policy and Google Terms of Service apply.