What Should I Do After Being Declined for a Business Loan?

Being declined for a business loan doesn't necessarily mean that your business cannot obtain finance.

Business lenders have different eligibility criteria, credit appetites and underwriting approaches. A company that is unacceptable to one lender may fit comfortably within another lender's criteria.

However, immediately submitting applications to several more lenders isn't always the best response.

The first step should usually be to understand why the application was declined. You can then decide whether to approach a different lender, change the amount or structure requested, provide additional information or address an underlying financial issue before applying again.

Find out why your business loan was declined

If possible, ask the lender for the reason.

The level of detail provided varies between lenders, but even a broad explanation can be useful.

Common reasons include:

• insufficient cash flow;

• too much existing borrowing;

• poor recent bank conduct;

• adverse credit;

• insufficient trading history;

• declining turnover;

• recent missed payments;

• the amount requested being too high;

• sector restrictions; or

• the proposed use of the funds falling outside the lender's criteria.

These reasons require very different responses.

For example, being declined because a lender doesn't finance your industry doesn't necessarily require you to change anything about the business.

Being declined because the company is struggling to service its existing debt does.

Was the decline caused by the lender's criteria?

Sometimes a business is declined simply because it doesn't fit a lender's particular credit policy.

Business lenders don't all finance the same types of companies.

They may have different requirements relating to:

• minimum trading history;

• minimum turnover;

• industry;

• geographic location;

• loan size;

• profitability;

• credit history;

• directors or guarantors; and

• available security.

A business can therefore be financially sound but still fall outside a particular lender's appetite.

If this was the reason for the decline, approaching a more appropriate lender may be the logical next step.

Was the amount requested too high?

A decline doesn't always mean the lender was unwilling to provide any finance.

The amount requested may simply have been too large relative to the company's financial position.

For example, a company may request £100,000 when its cash flow supports something closer to £50,000.

If the amount was the issue, consider whether:

• a smaller loan would still achieve the business objective;

• the borrowing could be taken over a longer period;

• additional security could support a larger facility; or

• part of the expenditure could be funded from the company's own resources.

The objective should be to find an amount that is both useful and affordable.

Review your existing borrowing

Existing debt is one of the most important areas to examine after a decline.

List every current finance facility and establish:

• outstanding balance;

• monthly or weekly repayment;

• remaining term;

• interest or cost;

• whether repayments are up to date; and

• whether any facilities were taken recently.

Then calculate how much the company is already paying towards debt.

A business can have strong turnover but limited additional borrowing capacity if a substantial proportion of its cash flow is already committed to existing lenders.

This is particularly relevant where the company has accumulated several short-term facilities.

Be careful about loan stacking

Taking another loan after being declined elsewhere can sometimes make the problem worse.

If the company already has several finance facilities, each new loan adds another repayment.

This can create a cycle where new borrowing is increasingly required to support previous borrowing.

That isn't sustainable.

Additional finance can still make sense where it funds something commercially productive or genuinely improves the company's funding structure.

But another loan shouldn't simply be used to postpone an affordability problem.

Review your business bank statements

Recent bank statements can often explain why an application was unsuccessful.

Look at the account in the way a lender might.

Are there:

• returned Direct Debits?

• failed loan repayments?

• persistent overdraft utilisation?

• very low cash balances?

• large unexplained payments?

• declining customer receipts?

• payments to numerous finance providers?

• substantial transfers to directors?

• HMRC arrears or irregular tax payments?

One unusual transaction may not matter.

A pattern of weak bank conduct can.

If the bank account shows recent financial pressure, allowing the position to stabilise before applying again may improve the next application.

Check your business credit information

It can be useful to review the company's credit profile before making another application.

Look for:

• CCJs;

• incorrect company information;

• adverse payment information;

• insolvency records;

• filed accounts;

• credit scores or ratings; and

• other information that may concern a lender.

If something is inaccurate, contact the relevant organisation or credit reference agency about correcting it.

If the information is accurate, prepare an explanation where appropriate.

Knowing what a lender is likely to see puts you in a better position when making another application.

Check your personal credit information

SME lenders may also consider the credit history of directors or proposed guarantors.

This can be particularly relevant where a personal guarantee is required.

If you know there is personal adverse credit, such as a CCJ or previous default, understand:

• how much was involved;

• when it occurred;

• whether it has been satisfied;

• what caused it; and

• whether there have been further problems.

A historic isolated issue can present a very different risk from continuing adverse credit.

What if I have a CCJ?

A CCJ doesn't necessarily mean that you cannot obtain business finance.

However, the lender may consider:

• whether the CCJ is against the company or a director;

• amount;

• age;

• whether it has been satisfied;

• circumstances behind it; and

• whether there are other judgments.

If the debt is legitimately owed and can reasonably be paid, satisfying an outstanding CCJ may strengthen the application.

However, paying it immediately before applying doesn't necessarily make the underlying credit history irrelevant.

What if I have missed existing loan payments?

Recent missed payments deserve particular attention.

A new lender is likely to ask why the company needs additional borrowing when it is already struggling to maintain existing repayments.

If the missed payment was an isolated timing issue and has been resolved, explain that.

If several payments have been missed or the company remains in arrears, it may be better to stabilise the existing position before taking on more debt.

A period of satisfactory repayment conduct can provide evidence that the problem has been resolved.

Should I reduce my existing debt before applying again?

Potentially.

Reducing existing borrowing can improve an application in several ways.

It can:

• reduce regular debt repayments;

• improve cash flow;

• reduce leverage;

• simplify the company's funding structure; and

• demonstrate financial discipline.

Paying off a small loan that carries a disproportionately high weekly or monthly repayment can sometimes make a meaningful difference to affordability.

However, don't use scarce working capital to repay debt if doing so leaves the business without sufficient liquidity to operate.

The complete cash position needs to be considered.

Should I apply for a smaller business loan?

Sometimes.

If affordability or exposure was the problem, a smaller request may be more realistic.

But avoid simply reducing the amount until a lender says yes.

The loan still needs to achieve the purpose for which it is being taken.

If the business genuinely needs £100,000 to complete a project, borrowing £30,000 may create a different problem if there is no credible way of funding the remaining £70,000.

The amount should therefore be both affordable and sufficient for the intended purpose.

Would a longer repayment term help?

Potentially.

A longer term generally reduces the regular repayment for a given loan amount.

That can make the facility easier for the business to service from its cash flow.

For example, £60,000 repaid over 12 months creates a much greater regular cash requirement than the same amount repaid over 36 months.

However, a longer term can increase the total amount of interest paid.

The term should also be appropriate for the purpose of the borrowing.

Longer-term investment is generally better matched with longer-term finance than repeatedly refinancing short-term debt.

Would offering security improve my chances?

Possibly.

If suitable property or another acceptable asset is available, secured lending can provide a lender with additional protection.

That may allow it to consider:

• a larger amount;

• a longer term;

• lower pricing; or

• an application that falls outside its unsecured lending appetite.

But security doesn't solve weak affordability.

A business that cannot generate enough cash to make the repayments isn't automatically suitable for a loan simply because property is available.

Should I provide more financial information?

Sometimes a decline results from insufficient evidence rather than fundamentally weak credit.

For example, the company's latest filed accounts may look weak while current trading has improved significantly.

Providing information such as:

• management accounts;

• recent bank statements;

• current turnover figures;

• debtor information;

• details of a new contract; or

• evidence explaining an unusual transaction

may give a lender a more accurate picture.

Don't overwhelm the lender with unnecessary documentation, but provide information that genuinely addresses a weakness or uncertainty in the application.

Should I explain adverse credit?

Yes.

Where you know there is an issue, a concise explanation can be valuable.

A useful explanation covers:

What happened?

Describe the issue clearly.

When did it happen?

Recency can be important.

Why did it happen?

Explain the underlying circumstances.

Has it been resolved?

State whether arrears, defaults or judgments have been paid.

What has changed?

Explain why the problem is less likely to happen again.

The explanation should be factual rather than defensive.

Ultimately, subsequent financial conduct is usually more persuasive than an explanation alone.

Should I immediately apply to several other lenders?

Usually not.

Submitting multiple applications can be counterproductive.

Some applications may involve hard credit searches, and several recent applications can itself become relevant to subsequent lenders.

More importantly, applying indiscriminately doesn't address the reason for the original decline.

A better approach is:

Understand the decline → identify the appropriate type of lender → make a targeted application.

This can reduce unnecessary searches and improve the quality of the next application.

Should I use a business finance broker after being declined?

A reputable commercial finance broker can potentially help, particularly where the application doesn't fit mainstream lending criteria.

A broker may understand which lenders are more likely to consider:

• adverse credit;

• unusual industries;

• short trading histories;

• complex ownership structures;

• secured lending;

• existing debt; or

• particular funding purposes.

However, understand how the broker is paid and whether submitting information through them will result in applications or credit searches with multiple lenders.

A broker should be helping to identify an appropriate lender rather than simply distributing the application as widely as possible.

How long should I wait before applying again?

There isn't a universal waiting period.

If the decline was purely because you approached the wrong lender, there may be no reason to wait.

If the problem was recent financial conduct, waiting can be useful only if the period produces evidence of improvement.

For example, several months might demonstrate:

• all repayments being maintained;

• improved cash balances;

• no further returned payments;

• reduced borrowing;

• stronger revenue; or

• resolution of adverse credit.

Simply waiting three months while the company's financial position continues to deteriorate doesn't make the application stronger.

When should I not take another business loan?

Sometimes the correct response to a decline is not to find another lender.

Be cautious about additional borrowing where:

• existing repayments are already unaffordable;

• arrears are increasing;

• new loans are being used to repay previous loans;

• turnover is falling rapidly;

• the business has persistent cash-flow deficits;

• creditors aren't being paid when due; or

• there is no credible source of repayment.

Additional debt can temporarily provide cash while making the underlying financial position worse.

In those circumstances, the business may need to address its costs, working capital, existing creditors or capital structure before borrowing again.

Can another lender approve me after I have been declined?

Yes.

A decline by one lender isn't a universal credit decision.

Different lenders have different:

• risk appetites;

• credit policies;

• products;

• pricing;

• security requirements; and

• underwriting methods.

A business that fails an automated scorecard may potentially be acceptable to a lender using manual underwriting.

Likewise, a lender specialising in established SMEs may decline a young company that is perfectly suitable for a specialist start-up lender.

The key is understanding why the first lender said no.

What should I do before my next application?

Before applying again, ask yourself:

• Do I understand why I was declined?

• Is the next lender actually suitable for my business?

• Is the amount I'm requesting realistic?

• Can the company comfortably afford the repayment?

• Are existing repayments up to date?

• Is there adverse credit that needs explaining?

• Are my recent bank statements likely to concern the lender?

• Is my financial information current?

• Is the purpose of the borrowing clear?

• Has anything materially improved since the previous application?

If you can answer those questions clearly, you're in a much stronger position to make a targeted application.

Applying to Adelpha Capital after another lender has declined your business

Adelpha Capital provides business finance to established UK SMEs.

Being declined by another lender doesn't necessarily mean that we will reach the same decision. Different lenders have different credit criteria, and we assess applications based on their individual circumstances.

Our underwriting considers factors including turnover, cash flow, recent bank conduct, trading history, existing borrowing and relevant credit information.

Where there is an issue with an application, understanding the circumstances behind it can be important rather than relying solely on a headline credit score.

If your business has been declined elsewhere and you're looking for finance, you can apply online or contact the Adelpha Capital team to discuss your requirements.