Aspiring entrepreneurs cannot leverage the savings to attend to every business requirement. Whether it is about purchasing inventory, hiring, ensuring strong technical support or business expansion, everything requires capital.
A Startup business loan is an amount borrowed from a lender by a business owner to fund urgent or long-term business requirements. One can use money from startup loans for almost any startup business purpose.
While not every business gets the needed financial help, some get it effortlessly. If you have been turned down for a startup business loan recently, check whether your business industry qualifies for the assistance or not.
If you cannot get a startup loan, you can resort to other loan offerings for urgent but short-term needs. Many ambitious individuals resort to loans for unemployed people to meet short-term business requirements and personal needs. Individuals on benefits may get the loan at minimal income proof. However, for long-term business growth, you need good capital.
Qualifying for a business loan can be challenging. Lenders analyze different aspects while providing loans to budding entrepreneurs. A business may qualify for the loan if:
- It shares the previous experience of operating a business
- Invested a good chunk of money
- Good credit history
Apart from this, eligibility criteria lay the base for qualifying for the startup loan. Many individuals excited to start a business often ignore the eligibility criteria.
The Criteria for Qualifying for Startup Business Loans
Getting a business loan can be tiresome if you are applying and dealing with complications for the first time. Some business owners become disheartened over the missed opportunity. There lies a scope to improve and apply again.
To apply correctly, you must be familiar with the eligibility criteria. Moreover, lenders should provide the notice detailing the reason for loan rejection to the business. It will help you avoid committing the same mistakes again.
Eligibility criteria to apply for a startup business loan in the UK:
Let’s understand the eligibility criteria to qualify for a startup loan in the UK.
- A person must be 18 years of age or older
- A business should be based in the UK
- You are starting a business or in operation for up to 36 months
- Your business type and loan purpose meet the loan terms
- You have a decent credit score and pass the affordability test
You need no “exact” credit score to qualify to get the business loan. The lenders analyse other parameters to provide loans. It includes:
- bank account proof
- The recent performance of the business
- The market outlook of your business sector
- Credit score
- Requirements around the quality of business assets
- A minimum number of months in as a trading record
- Projected turnover for the upcoming 12 months
- Check for the bankruptcy, CCJ or a Court Decree
In short, lenders will explore different aspects before lending the startup business loans. The procedure also includes a credit check. Missing any of these may lead to a straightaway loan application rejection. Bad credit may be one of the reasons.
What probability does one share of securing startup business loans for bad credit?
Lenders may analyse personal and business credit scores before providing a loan. The credit score is determined by financial and borrowing behaviour.
One can calculate it by the total number of debts in line with your business turnover. It is also known as the debt-to-income ratio. Thus, having a poor or bad credit score can shrink the possibility of securing a startup business loan.
However, some lenders analyse other aspects than a credit score to provide needed monetary assistance in this case. It includes a business plan, the business potential in the coming years, expected or projected business revenue, and the business owner’s creditworthiness. To provide the loan, the lender may demand a personal guarantee from the business owner in some cases.
If your business credit report reveals mounting debts and CCJs, it may make the whole process challenging. You can get startup business loans for bad credit, but the loan terms and interest rates may differ slightly from a good credit score business loan.
However, this doesn’t imply 100% loan approval. If you applied with bad credit and suffered a rejection, you need to improvise on certain things.
Next Thing to Do After Being Refused a Business Funding
If you are ready to try again and position your loan application in the best light, these steps may help.
1) Ask the reason for rejection from the lender.
Lenders generally are sceptical about lending to new businesses or startups. To reduce the risks associated with startup business loans for bad credit, they provide loans at a high-interest rate. Most of all, not every application passes through the credit screening qualification process. If you face a loan rejection, there must be a specific reason. Generally, lenders issue a notice stating the reason and the factors that contributed. To succeed in the second application round, you must know the parameters that lead to loan rejection. Ask the same from the lender.
2) Check and optimise your Credit profile.
The different business type has unique eligibility criterion. Sole proprietors’ credit scores play a significant role in obtaining startup business loans. Getting a startup business loan for bad credit is easier than securing one without one.
If you just started a business, your credit report will be non-existent. It makes it further complicate to secure a loan. If you do have a credit report, ensure disciplined usage and pay off high-interest debts, and check for CCJs, and bankruptcy status. If it stays even after maturity, report it to the credit bureaus.
3) Improve your business stats and ensure proper documentation
Amid so many urgencies and obligations- when did you last review your business performance? As per statistics, the two most important reasons for being rejected for a loan are- poor cash flow and insufficient income. You may initially qualify for loans for unemployed people, but to enter the mainstream, you must ensure strong business statistics and consistent cash flow. Take some time out and –
- Review your business terms and conditions. Could you modify some of these?
- Is there anything you can add to increase cash flow?
- Could you raise your price and improve profit margins?
- Could you re-define your business plan?
Having strong business statistics and cash flow may help you secure a business loan even at a less-than-ideal credit score.
Seeking startup business loans might be difficult if you have just stepped in. You can always research, review and improve your prospects by improvising the above points. Update yourself on the alternatives available to get funding at the initial business stage.