Why do SMEs get refused business loans?
The most common reasons for business loan refusal are insufficient trading history, low turnover, poor personal or business credit history, and insufficient cash flow to service the debt. Most banks require at least 2 years of trading. Alternative lenders have lower thresholds but charge higher rates. Understanding which tier of lender you are likely to qualify for saves time and protects your credit file from unnecessary hard searches.
What is a CCJ and how does it affect my loan application?
A County Court Judgment (CCJ) is a court order registered against you for an unpaid debt. CCJs appear on your credit file and are a significant barrier to mainstream lending. A CCJ registered in the last 24 months will typically disqualify you from high street bank lending. Some alternative lenders will consider CCJs that are older, satisfied, or of low value.
What is debt service coverage ratio?
The debt service coverage ratio (DSCR) measures whether your business generates enough cash to cover its loan repayments. A DSCR of 1.25 means you generate £1.25 of available cash for every £1.00 of debt repayment. Most lenders require a minimum of 1.1 to 1.5. A DSCR below 1.0 means your business cannot comfortably afford the repayments.
Should I use a broker or apply direct?
For straightforward applications to major lenders, applying direct is usually fine. For complex situations such as adverse credit, limited trading history, or unusual business models, a commercial finance broker can access lenders you would not find directly and improve your chances. Brokers typically charge a fee of 1%-2% of the loan amount or receive a commission from the lender.