A poor credit history does not automatically rule a limited company out of business finance, but it usually narrows the options. Some finance providers will not consider adverse credit at all. Others may look at an application depending on what happened, when, and what the business looks like today.
There is no shortcut around this. The most useful thing a director can do is understand the credit position, be open about it and look at finance types where the provider has other factors to rely on.
What counts as adverse credit
Finance providers typically review the credit profile of the company and, for most small and medium-sized businesses, its directors too. Issues that can count against an application include:
- County Court Judgments (CCJs) against the company or a director
- defaults on loans, credit cards, leases or supplier accounts
- missed or late payments on existing borrowing
- arrears with HMRC, such as VAT or PAYE
- late filing of accounts or confirmation statements at Companies House
- a director's past involvement in companies that entered insolvency
- personal insolvency events affecting a director
Directors are sometimes surprised that their personal history matters for a company application. Providers commonly look at who runs the business, and personal guarantees are frequently requested, so a director's own record can be relevant.
How it can limit your options
Adverse credit tends to affect finance in a few ways:
- Fewer providers. Some will decline outright based on certain markers.
- Different terms. Where an offer is made, it may be for a smaller amount, a shorter term, a higher cost or with additional security or guarantees.
- More questions. Providers may want explanations, evidence that the issue is resolved, or more recent financial information.
How much weight a provider gives an issue can vary. A settled CCJ from some time ago, with a clear explanation and a stable trading record since, may be viewed differently from recent or unresolved defaults. Every provider sets its own criteria, and the decision rests with them.
Want to know which options may suit your business?
Options that are sometimes considered
Where a provider can rely on something other than credit history alone, an application may still be considered. This is not a guarantee of approval.
Invoice-based finance. With invoice finance, the provider's assessment often focuses heavily on the quality of the invoices and the customers who owe them, alongside the business itself. A company with creditworthy business customers and clean invoicing may find this route more open than an unsecured loan.
Asset finance. With asset finance, the vehicle or equipment being funded usually forms part of the security. Providers still review credit, but the asset can be a significant factor.
Secured lending. Some providers may consider business loans secured against property or other assets where an unsecured loan would not be available. Securing borrowing against assets puts those assets at risk if repayments are not met. Take independent legal advice before giving security or a personal guarantee.
Check your credit files first
Before applying, check where you stand.
- Company credit file. Business credit reference agencies hold reports on limited companies. Review yours for CCJs, defaults and payment history.
- Directors' personal credit files. Each director can check their own file with the main credit reference agencies.
- Companies House record. Make sure accounts and confirmation statements are filed and up to date.
If you find an error, raise it with the agency concerned. If a debt has been paid, check that the record reflects this.
Avoid making several applications in a short period. Credit searches can be recorded, and a cluster of applications may raise questions with later providers.
Be upfront with providers
Disclose adverse credit at the start. Providers are likely to find it in their own searches, and an issue explained early is easier to discuss than one discovered later. Withholding or misrepresenting information on a finance application can have serious consequences and is never worth the risk.
A good explanation covers what happened, why, what has changed and the evidence that supports it, such as up-to-date accounts, recent bank statements and a record of payments made on time since. Our guide to what business lenders look for sets out the wider factors providers weigh up. A commercial finance intermediary such as Emirex Finance can help you understand which types of provider may consider your circumstances, but no intermediary can promise an outcome.
Key points
- Adverse credit on the company or its directors usually narrows options, but does not always rule finance out.
- Some providers may consider applications depending on the circumstances, often with different terms.
- Invoice-based, asset-backed and secured finance are sometimes considered where unsecured lending is not.
- Check credit files beforehand and disclose any issues openly from the start.
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This guide is general information, not financial, legal or tax advice. Finance is subject to status, eligibility and approval by the relevant finance provider. Emirex Finance works with UK limited companies only and is not authorised or regulated by the FCA.