Can My Business Get a Loan if a Director Has a CCJ?

Yes, potentially.

A County Court Judgment (CCJ) against a director does not automatically mean that their limited company cannot obtain a business loan.

A limited company is legally separate from its directors, so a personal CCJ against a director is different from a judgment registered against the company itself.

However, business lenders may also assess the people behind an SME, particularly directors, significant shareholders and anyone providing a personal guarantee. A director's CCJ can therefore still affect a business loan application.

How significant it is will usually depend on factors such as the amount of the CCJ, how recent it is, whether it has been satisfied, what caused it and the financial strength of the business itself.

Why does a director's personal credit matter?

For larger companies, the personal financial position of an individual director may have relatively little connection with the creditworthiness of the business.

SMEs can be different.

An owner-managed company may be closely connected to one or two directors who:

• own the majority of the shares;

• make the important financial decisions;

• manage the business day to day; and

• provide personal guarantees for company borrowing.

A lender may therefore consider information about those individuals when assessing the overall credit risk.

This doesn't mean that the director and company have the same credit profile. They remain legally separate.

It means the lender may consider both when deciding whether to lend.

Is a director CCJ different from a company CCJ?

Yes.

This distinction is important.

A company CCJ is a judgment against the limited company that is applying for finance.

A director CCJ is a judgment against the individual personally.

A company CCJ can provide direct evidence about how the borrowing business has dealt with its own financial obligations.

A director's personal CCJ relates to the individual rather than the company.

For that reason, a lender may treat the two differently.

However, a director CCJ can become particularly relevant where the director is also the company's owner or is being asked to guarantee the loan personally.

Will a lender credit check the directors?

Potentially.

Business lenders will normally obtain information about the borrowing company, but many SME lenders also conduct searches on relevant directors or proposed guarantors.

The type of search varies between lenders.

Depending on the lender and product, a search may identify information including:

• personal CCJs;

• insolvency information;

• previous defaults;

• other adverse credit; and

• information relevant to the lender's credit assessment.

If you are concerned about the effect of an application on your personal credit file, you can ask the lender whether it carries out a soft or hard search before proceeding.

Does the size of the director's CCJ matter?

Usually.

A relatively small judgment may present a different risk from a substantial unpaid debt.

For example, a £500 historic CCJ arising from a disputed personal bill isn't necessarily equivalent to a £50,000 recent judgment resulting from unpaid borrowing.

The lender may consider:

• amount of the judgment;

• nature of the underlying debt;

• director's financial circumstances;

• whether it has been satisfied; and

• whether there are other adverse credit events.

The lender is trying to understand what the CCJ says about the individual's credit risk rather than simply recording that one exists.

Does the age of the CCJ matter?

Yes, it can.

Recent adverse credit generally provides more current information about financial behaviour than an issue from several years ago.

A CCJ registered several years previously, followed by otherwise satisfactory credit conduct, may be easier for a lender to become comfortable with.

A CCJ registered very recently can raise more immediate questions.

For example:

Is the debt still outstanding?

Is the director currently experiencing financial difficulty?

Are there other unpaid liabilities?

Could those personal financial difficulties affect the business?

The lender may therefore look at what has happened since the judgment as well as the judgment itself.

Does it matter if the CCJ has been satisfied?

Potentially, yes.

A satisfied CCJ demonstrates that the judgment debt has subsequently been paid.

That doesn't mean the lender will necessarily disregard it.

The lender may still consider why the judgment occurred and how recently it was registered. However, an historic satisfied CCJ followed by satisfactory financial conduct can present a very different picture from a recent judgment that remains unpaid.

The status of the CCJ is therefore one part of the overall assessment.

What if the CCJ arose from a dispute?

Explain the circumstances.

A CCJ can arise for many reasons, and not all judgments necessarily indicate that someone was unable to pay their debts.

For example, there may have been a genuine dispute about:

• an invoice;

• services provided;

• a contractual obligation;

• responsibility for a debt; or

• the amount owed.

However, the existence of a dispute doesn't automatically make the judgment irrelevant.

A lender may want to understand why the matter ultimately resulted in a court judgment and what happened afterwards.

A clear and credible explanation is generally more useful than simply describing the CCJ as "disputed".

Does it matter how much of the company the director owns?

It can.

A CCJ against a director who owns 100% of the company and controls its finances may be more relevant to a lender than a CCJ against a director with a very small shareholding and limited involvement in the business.

Lenders may consider:

• shareholding;

• control of the company;

• management responsibilities;

• whether the individual is a key person; and

• whether they will provide a personal guarantee.

The closer the connection between the individual and the financial management of the company, the more relevant their personal credit history may become.

What if another director has good credit?

That can be relevant, but it doesn't necessarily cancel out another director's adverse credit.

Where a company has several directors or shareholders, a lender may consider the overall ownership and management structure.

For example, a company owned equally by two directors might have one director with an historic CCJ and another with a clean credit history.

The lender can consider both individuals alongside the financial position of the company.

However, it would be unusual to treat one director's good credit simply as an offset against another director's CCJ. The circumstances of the adverse credit still need to be understood.

What if the director isn't providing a personal guarantee?

The CCJ may potentially be less significant, depending on the lender.

If the individual isn't providing a guarantee, the lender isn't necessarily relying on their personal financial position as a direct source of repayment.

However, the director may still control or substantially own the business.

A lender may therefore still consider their credit history relevant to its assessment of the company.

Different lenders have different policies on which directors they search and how those searches affect their lending decisions.

What if the director is providing a personal guarantee?

The director's personal credit position is likely to become more important.

A personal guarantee gives the lender additional rights against the guarantor if the company fails to meet obligations covered by the guarantee.

The lender therefore has a legitimate interest in assessing the financial position and creditworthiness of the proposed guarantor.

A substantial unsatisfied CCJ may reduce the value the lender places on that guarantee.

Conversely, a small historic satisfied CCJ may be considerably less significant.

Does the director need to be a homeowner?

This depends on the lender.

Some SME lenders require or prefer personal guarantors to own residential property. Others don't.

Homeownership and personal credit are also separate considerations.

A director could own substantial property but have a CCJ. Equally, someone with an excellent personal credit history may not own a home.

A lender may consider both when assessing the strength of a proposed personal guarantee.

Can the strength of the company outweigh a director's CCJ?

Potentially.

This is where looking at the complete lending proposition becomes important.

Consider an established company with:

• several years of successful trading;

• strong turnover;

• consistent profitability;

• healthy cash balances;

• limited existing borrowing;

• satisfactory bank conduct; and

• no adverse company credit.

If one director has a relatively small historic personal CCJ, some lenders may conclude that the overall business remains an acceptable credit risk.

Contrast that with a company experiencing falling revenue, repeated returned payments and increasing borrowing where its sole director also has several recent unsatisfied CCJs.

The second situation presents a very different picture.

The director's CCJ should therefore be considered in context rather than in isolation.

Can I get an unsecured business loan if a director has a CCJ?

Potentially.

Unsecured business lenders have different appetites for adverse credit.

Because there is no specific asset supporting the loan, the lender is likely to focus closely on:

• strength of the company;

• current cash flow;

• existing borrowing;

• recent bank conduct;

• credit history; and

• strength of any personal guarantees.

A director's CCJ may influence the decision, but it doesn't necessarily result in an automatic decline.

Would a secured business loan be easier?

Possibly.

Providing suitable security can reduce the lender's potential loss if the company fails to repay.

This may make some lenders more comfortable considering an application where a director has adverse credit.

However, security doesn't remove the need to understand the CCJ or assess affordability.

The lender should still expect the business to generate sufficient cash to make the repayments.

What if the director has several CCJs?

Multiple CCJs are likely to attract greater scrutiny than one isolated judgment.

Several judgments may suggest a pattern of difficulty meeting financial obligations.

The lender may consider:

• number of judgments;

• total amount outstanding;

• dates they were registered;

• whether they have been satisfied;

• different creditors involved; and

• whether further adverse credit has occurred.

A series of recent unsatisfied CCJs is generally a more significant credit concern than a single historic judgment.

Should I tell the lender about the director's CCJ?

Yes.

If you know the lender is likely to conduct a personal credit search, there is little benefit in waiting for it to discover the CCJ.

Providing the information upfront allows you to explain:

What happened.

How much was involved.

When it occurred.

Whether the judgment has been satisfied.

Whether it was an isolated issue.

What has happened since.

That can make the application easier to assess and reduces the risk of the lender initially forming an incorrect impression.

Should I remove a director with bad credit before applying?

Changing the company's directorship purely to avoid a lender discovering adverse credit is unlikely to be a sensible approach.

Lenders may consider shareholders, beneficial owners, previous directors and other connections with the company, depending on their underwriting and due diligence processes.

More importantly, if the individual continues to own or control the business, removing them as a director doesn't necessarily change the underlying lending risk.

Accurate disclosure of the company's ownership and control is important.

A genuine change in management or ownership is different, but artificial restructuring designed solely to avoid credit assessment may create more questions rather than fewer.

What information should I provide?

If a director has a CCJ, useful information can include:

• amount of the CCJ;

• date registered;

• whether it has been satisfied;

• creditor;

• reason it arose;

• evidence of payment where relevant; and

• a brief explanation of the circumstances.

You should also provide accurate information about the business itself.

Strong recent financial performance can be particularly relevant when demonstrating that a director's historic personal credit issue isn't representative of the company's current financial position.

Applying for business finance where a director has a CCJ

Adelpha Capital provides business finance to established UK SMEs.

A personal CCJ against a director doesn't necessarily mean that the company cannot be considered for finance. Where adverse credit exists, we can consider its age, amount, status and circumstances alongside the wider financial position of the business.

Our assessment also considers factors including turnover, cash flow, recent bank conduct, trading history and existing borrowing.

If a director of your business has a CCJ and the company is looking for finance, you can apply online or contact the Adelpha Capital team to discuss your requirements.