What are Commercial Lenders Looking for?

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Almost every business experiences a period of financial constraint. When that happens, what course of action should they take? Well, their first port of call will be to look for alternative sources of funding - so they can keep the commercial wheels of their enterprise turning. This makes it sound remarkably straightforward. But it isn’t. Securing business finance can be hard, which is why you need to know what commercial lenders are looking for.

In this short guide, we’ll take a closer look at the criteria lenders use when assessing applications. This information will help you understand which factors might be holding you back - so you can improve your chances of securing credit in the future.

1. What is your credit repayment history like?

Commercial lenders aren’t in the habit of handing out money on a whim. Their job is to minimise risk by delving deep into applicants’ credit histories. Two key areas they look at are repayment history and bankruptcy. If you’ve defaulted on payments in the past - or have gone into bankruptcy - securing short-term finance or funding for your business will prove difficult.

Repaying your bills quickly will improve your credit history. You should also limit the number of loan applications you make, as these will show on your credit file and could deter lenders.

2. Do you know your business credit score?

The higher the score, the greater the chance of being accepted by a commercial lender. Before applying for a loan, log into your credit file to view your score - so you understand the odds. This is also your opportunity to challenge incorrect data. Mistakes happen. But they can also be rectified by informing your credit agency in writing.

Areas of interest to lenders when viewing your credit file include:

1. How quickly you’ve repaid money lent by previous providers

2. How many credit accounts you’ve opened historically

What’s a good credit score for a business? The scale runs from 0-100, with 100 being the highest (and most desirable) score achievable.

3. Can you prove your business is financially stable?

A finance broker and commercial lender won’t just look at your credit file. They’ll also want to see bank statements, balance sheets, and understand your cash flow. They will want to understand how you manage your business finances - is growth evident, are profits retained in the business to support growth? Demonstrating well-managed finances is always a bonus. This will give them insight into your financial position and verify your ability to repay debts over time.

A few ways to reduce your cash flow - and make your business more ‘lender friendly’ - could include delaying payments, leasing property, or buying reduced equipment to lower expenses.

4. Do you have security to use as collateral for a loan?

Pretend for a moment your business was unable to repay a loan. The lender would need to recoup its losses somehow. It could do this by selling an asset you owned - like a vehicle, land, building, or machinery.

That’s why you’ll usually be asked to provide collateral in the form of an asset your lender can ‘cash in’ in the (hopefully unlikely) event you were unable to honour the terms of your agreement with them.

Alternatively, you could apply for an unsecured loan.

If you need long term financing, providing collateral will improve your chances of securing the loan. But it is possible to borrow from a commercial lender without proposing an asset.

This would involve applying for an unsecured loan. However, your business would need to have a rock-solid repayment history, a first-class credit score, and be financially stable overall.

Currently, lenders are very unlikely to lend to businesses without a Personal Guarantee or debenture. This is something business owners should expect. There are insurance policies you can take against any personal guarantees which can provide some peace of mind.

How can we help?

If your borrowing circumstances are challenging or complex, we can act as an essential go-between - using our expertise to find the right financial lender for your business and circumstances.

Contact us to learn more.