Lenders have a set perceptive on what a healthy business is, and they only ever lend to those that are healthy. Businesses that can’t show a capability to repay are rejected, and businesses that do not submit an accurate application are too.
If you are thinking about applying for an SME loan for your business, there are three main ways to improve your chances of being approved.
- Submit an accurate application
It sounds so, so obvious, yet you’d be surprised by how many applications lenders receive that do not contain accurate information (around two in five). The information you supply in your application will be used to determine its legitimacy. You’ll include the names, dates of birth and home addresses for all business owners and your company registration number. If these details are inaccurate, the loan application will be refused, and you will have to start over again.
It makes sense to take your time with your application. Write down all answers to information requests and double-check their accuracy. By ensuring you submit an accurate application, you allow a lender to decide whether or not to approve your application based on your business’s health and what you plan to do with the money.
- Maintain and show business profitability
Lenders want to see capability of repayment with SME loans. The best way to show this is by maintaining profitability in your business. Profitability is important because it shows your business model works. It also gives the lender a rough estimate of the cash in your business. These details are very helpful and particularly so with lenders who review applications in person. Lenders who use automated systems will reject a business out of hand if it’s loss-making.
Can’t show business profitability? Another sign of a healthy business is activity. If your business has an active balance sheet and can accommodate the cost of loan repayments, a lender may approve the application if they are satisfied with capability of repayment. Also, if you can’t show profitability, you can offer the lender security in the form of an asset to get a loan. This is called a secured loan.
- Approach independent lenders – not banks
High-street banks do not typically offer the most competitive business loans. And, in many instances, they don’t have specialised products for SMEs.
A quick comparison between a leading high-street bank (HSBC) and a leading independent lender (Nationwide Corporate Finance) for an SME loan reveals a difference in representative APR of 3.8% in favour of the independent lender. That’s an enormous difference that equates to hundreds of pounds over a single year.
Another important point is high-street banks put applications through a computerised system. If they pass that test, they get a human review. Independent lenders do not usually have computerised systems and review applications in person right off the bat. This makes for a fairer, more personal application process and a higher chance of approval.