Finding a business loan that suits your business can be complicated because of the number of options available in the market.
Whether you’re looking for finance to grow your business or money to get your business started, there are lots of different providers you can approach.
But things aren’t necessarily straightforward when you find a provider you like the look of, because your application can still be rejected.
Why was my business loan application rejected?
There are lots of reasons why a lender might reject your application. We explain some of the most common ones below:
Your credit score
When you apply for a loan, lenders will likely consider both your business credit score and personal credit score. These provide a good indication of how risky it would be to lend money to you or your business.
The age of your business
New businesses can sometimes struggle to apply for loans because they have little or no evidence of their ability to pay off debt. Some providers require a business to be trading for two years to be eligible for a business loan.
You already have debt or lines of credit
If you already have a number of debt and credit facilities, lenders may be reluctant to add to it as it could affect your ability to repay the loan.
Lenders view certain sectors as high-risk and might be reluctant to provide finance to businesses operating within them.
Lack of security
Some business loans require security in the form of assets or personal guarantees. A business that doesn’t have assets of sufficient value or can’t provide a personal guarantee may be refused finance.
Your application isn’t well thought out
Lenders may ask to see your business plan and want to know how you’ll use the loan. If these don’t make sense, or seem incompatible, a lender will likely reject your application.
The above reasons may frustrate you, especially if you’re a relatively young business without a long track record. But the good news is that there are several government-backed lenders and schemes that can help if your business loan application is rejected.
The Bank Referral Scheme
Launched in 2016, the Bank Referral Scheme helps businesses to find alternative funding when one of the major UK banks has rejected them for finance.
You must agree to your details being shared. If you do, the scheme passes details of your business to the following three designated platforms:
- Alternative Business Funding
- Funding Options
- Funding Xchange
Once the application is referred, the platforms will review the information and offer you funding if they find a suitable match.
Lenders have different appetites to risk. Just because one isn’t willing to lend doesn’t mean they will all take the same approach.
National and regional funds
There are a number of government-backed funds in the UK, designed to support smaller businesses in accessing finance.
The national funds or programmes are available to smaller businesses across the country. The regional funds, as you’d expect, are available to smaller businesses within the relevant regions.
British Business Bank regional programmes
The British Business Bank works alongside Local Enterprise Partnerships (LEPs) in the North of England, the Midlands and the Cornwall and Isles of Scilly to deliver three regional development programmes:
- Northern Powerhouse Investment Fund (NPIF)Link opens in a new window
- Midlands Engine Investment Fund (MEIF)Link opens in a new window
- Cornwall and Isles of Scilly Fund (CIOSIF)Link opens in a new window
Each scheme is designed to help smaller businesses within the relevant regions access different forms of finance, including debt financeLink opens in a new window and equity financeLink opens in a new window.
UK Export Finance (UKEF)
UK Export Finance (UKEF) does not lend directly to businesses. Instead, through its Export Working Capital Scheme, it supports businesses that have been unable to secure finance to export their product or goods.
UKEF provides guarantees to lenders to reduce their risk and increase their appetite to lending.
Start Up Loans
Start Up LoansLink opens in a new window is a government-backed scheme designed to help individuals start or grow a business.
The loans are:
- unsecured — so you don’t need to use any assets as security or provide a personal guarantor
- personal loans — which means you’re personally liable for repaying the amount you’ve borrowed