When a finance provider reviews an application, it is answering one central question: how likely is it that this money will be repaid as agreed? Everything it looks at feeds that judgement.
Each provider sets its own criteria and weighs them differently, but the same broad themes come up across most types of business finance. Seeing your business from the provider's side helps you present it clearly and spot weak points before you apply.
Ability to repay
This is usually the deciding factor. The provider wants confidence that the business generates enough cash, reliably enough, to cover the new repayments alongside everything it already pays.
It will typically consider:
- whether income is steady or highly seasonal
- how much of the monthly cash flow is already committed to existing finance
- whether reported profits are reflected in the bank balance
- what would happen to repayments during a weaker trading period
A business that can show repayments remain affordable in a quieter month is usually a stronger proposition than one that only works if everything goes to plan.
Trading record and credit profile
Trading record. History gives a provider evidence to work with. It will look at how long the company has traded, whether turnover and profit are stable, growing or falling, and whether accounts have been filed on time at Companies House. A recent dip is not necessarily a problem if there is a clear explanation and signs of recovery.
Credit profile. Providers usually search the credit files of the company and often those of its directors. They look for missed payments, county court judgments, defaults and how existing credit is managed. A cluster of recent credit applications can also attract attention.
An adverse credit history does not automatically lead to a decline, and some providers consider businesses with a weaker record, as our guide to limited company finance with bad credit explains. Being open about past issues is always the better approach.
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The people running the business
Providers are backing management as well as the numbers. They tend to be more comfortable where directors:
- have relevant experience in their industry
- understand their own figures and can explain them
- keep reliable financial records and up-to-date management accounts
- stay on top of tax, supplier and finance payments
Arrears with HMRC or a pattern of late payments can raise concerns about how a business is run, even when sales are strong. Each sector also brings its own considerations, which is why some providers focus on particular industries.
Security and guarantees
Security gives a provider a second route to repayment if the business cannot keep up with its commitments. Depending on the product, it may be:
- the asset being financed, as with asset finance
- the company's unpaid invoices, as with invoice finance
- property or other business assets
- a debenture over the company's assets
Directors are often asked for personal guarantees, particularly for unsecured lending. A guarantee means a director may become personally liable if the company does not repay, so it should be fully understood before it is signed. Taking independent legal advice is sensible.
Security supports an application but rarely rescues a weak one. Most providers still want to see that the business can repay from its own trading.
Purpose and plan
A provider wants to know exactly what the funding is for and how it will benefit the business. A clear purpose, backed by evidence, makes an application easier to assess. Useful evidence can include:
- a supplier quote or invoice for equipment
- a signed contract or purchase order
- a cash flow forecast showing the timing gap the funding will cover
The plan should also show where repayments will come from. A request that simply covers an existing shortfall, with no clear route back to stability, is harder for a provider to support.
A commercial finance intermediary such as Emirex Finance can help you understand how a provider is likely to view your request and whether a business loan or another type of finance may fit. For more on how these factors affect the size of a facility, see how much a limited company can borrow.
Key points
- Ability to repay from trading is usually the main consideration.
- Trading record, credit profile and the quality of management all shape the provider's view.
- Security and personal guarantees support an application but rarely replace affordability.
- A clear, evidenced purpose and repayment plan make a request easier to assess.
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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.