Funderer, 10 Surprising Reasons You're Being Denied an Unsecured Business Loan

Age of Business

One of the most common reasons people do not receive loan offers, or the types of offers they are looking for, is the age of their business. Lenders do not typically offer loan terms longer than the duration for which your business has been operating. If your business has been around for less than two years, it is highly unlikely that you will receive an offer allowing repayment over a term longer than two years.

In the United Kingdom, around 20% of businesses fail in their first year, and approximately 60% fail within three years. Having a strong track record significantly increases your chances of securing a loan. Businesses under three years old are generally considered high risk.

Do You Have Two Sets of Filed Accounts?

Businesses typically need two sets of filed accounts on Companies House to be eligible to approach the strongest lenders in the market, exceptions can be made - this is entirely dependant on the strength of the business. Stronger businesses may get away with a single filed account.

Size of Business and Turnover

In some cases, your turnover may be too low to qualify for a loan. Lenders usually offer funding as a specific proportion of your turnover—typically between 10-40%. To be considered for an offer by most lenders in the UK market, your business should be generating between £10,000-£15,000 per month as a minimum.

Financials – Are You Loss-Making?

Loss-making companies are perceived as extremely high risk. According to available data, a significant portion of businesses that fail are unprofitable. Estimates suggest that around 82% of businesses fail due to cash flow problems, often stemming from insufficient profits to cover expenses. This effectively classifies them as loss-making businesses, making it difficult to secure financing.

Bounced Payments

If you have accumulated too many bounced payments, lenders will view you as high risk, as this indicates a strong likelihood that you may also miss loan repayments.

Business History

If you are a shareholder of a liquidated company within the last 5-10 years, there is a very low likelihood that you will be considered by any strong lender in the market. You have demonstrated an inability to pay your debts, making you one of the highest-risk potential borrowers. Funderer has access to the niche lenders that can accommodate directors within this space

Personal Credit

Personal credit plays a significant role in securing favourable rates. It reflects your borrowing habits and is generally a strong indicator of how you will manage your business loans.

Industry Risk

Certain industries are prohibited from receiving funding, such as those involved in the dealing of weapons, tobacco, and other illegal activities.

Debt-to-Income Ratio

How much debt do you currently have on your books? This is a key factor lenders will scrutinise. If you are overly leveraged, there is a high likelihood that in the event of default, some lenders will be unable to recover their money, making them hesitant to approve your loan.

Legal or Tax Issues

If your business has unpaid taxes, legal disputes such as CCJs, or regulatory issues, lenders may be unwilling to approve your loan request.

If you were wondering How to get a business loan, I hope this answered some of your questions!

Feel free to contact us if you have any further questions.