A Good Business Loan Application

Tom Malley FCCATom Malley FCCA

Tom Malley FCCA

Whether to approve your business credit or not isn’t always a tick box type exercise. If you're using a loan broker you most likely already know that it will not be, for you at least!

Neither is it the case that lenders will only lend if your attributes are all in the good column.

The below should help you understand the type of factors being considered for your yes, no come back later.

What Lenders Will Like To See

  • Integrity, honesty, and openness.
  • The ability to repay the loan within the loan term.
  • Sufficient security (if the loan is secured).
  • Historically cash generative and forecast to be cash generative.
  • An acceptable interest cover or satisfactory cash generation to loan service cover ratio.
  • Good trading history.
  • Conversion of shareholder debt to equity, or willingness to subordinate shareholder debt.
  • An easily understood business model.
  • Simple group and ownership structures.
  • No HMRC arrears.
  • No other debt.
  • Being able to demonstrate your product/service benefits the environment or society.
  • That historically the business retained enough cash to meet its obligations.
  • Good reputations of owners and managers.
  • A well-produced information memorandum.
  • That the loan value is sufficient for you to execute your plans.
  • That the planned outflow is for future economic benefit (proactive).
  • Loan proceeds spent on the stated purpose.
  • The business is reporting on time and meeting its targets.

What Lenders May Not Like To See

  • Loan stacking.
  • The business, its Director, or their spouses having a history of debt enforcement.
  • A lack of organisation.
  • Complex group.
  • Complex ownership structures.
  • Complex intra group trade.
  • Significant cash operations.
  • High-risk activities.
  • Multiple companies under common control with non-coterminous year ends.
  • History of arrears with HMRC.
  • Some sectors e.g: life sciences, arms manufacture, gambling.
  • The loan proceeds deployed to support the lifestyle of the owners rather than a business reason.
  • Running out of cash due to poor planning (reactive).
  • That post loan: financial performance and position are adverse Vs your forecast. Particularly your loan security (if secured).
  • Late reporting.
  • Lack of communication with the Lender.