Are Small Business Loans Hard to Get?

A small business loan is often difficult to obtain, with banks having strict requirements that are difficult to meet for many SMEs. A significant 30% of small businesses that apply for loans from high street banks get rejected, with SMEs employing 10 people or fewer facing an even higher rejection rate of 40-45%.

This difficulty accessing traditional bank loans is how many independent lenders like BEF have emerged to offer more flexible loan options to small businesses requiring capital to fund their growth.

BEF offers a more flexible lending criteria which focuses on a business’s growth potential, even if the company lacks an extensive credit history, due to its limited time in operation. This makes BEF an ideal choice for start-up companies or smaller enterprises that need capital to invest and expand. 

Another option small businesses in the UK can consider is the Government Growth Scheme (GGS). The GGS offers low-interest loans, grants, and funding schemes for startups and businesses in sectors that are often deemed too risky for a loan from banks. This scheme has been created to fill the funding gap and provide help and support to companies likely to face difficulties finding the capital they require to grow and progress.

Typically, when applying for a small business loan, lenders will assess your business plan, financial documents like balance sheets and cash flow statements, and your credit history. However, other elements may be required like bank statements, ownership structure, personal credit, and even collateral, depending on whether you’re looking to take out a secured or unsecured loan. 

It’s important to note that different lenders, whether it’s traditional banks or private lenders, will have their own set of criteria surrounding the loans they offer. So, it’s vital to do your research around each lender's requirements, to ensure the best chance of your loan being accepted. 

To be given a quote for a small business loan at BEF, we’ll ask a few questions to inform us about your requirements and help us make a lending decision before progressing to the business loan application:

• How long have you been trading for? 
• How much would you like to borrow?
• Business details: Name, location, type of business, company number, and reason for loan.
• Personal details 
• Three years of personal address details 

We’ll also undertake a personal credit check on the person applying for the loan, alongside requiring consent from other co-applicants or directors for the loan at a later date, if your enquiry is to progress to a full application.

If, for any reason, we deem your business unsuitable for a small business loan, we also offer start-up loans that you can apply for instead. 

Several factors can impact a small business loan approval. Lenders evaluate the following criteria to assess the risk of lending to your business and determine whether you're likely to repay the loan:

Credit Score
Lenders may check both your personal and business credit rating to evaluate the risk of lending you funds. Borrowers with a higher credit score are deemed more reliable and likely to repay their loan, increasing the likelihood of approval. 

Business Revenue and Cash Flow
The lender may require profit and loss and bank statements, to determine your business’s financial health. Strong financial records demonstrate you have a consistent cash flow and revenue, and show lenders you are good at managing your finances and will make your monthly repayments. 

Business History
The length of time a business has been operating is another key factor that will be considered, as the business history can show the company’s profitability. Startup businesses under 2 years old, with a limited business history, are typically deemed riskier. 

Business Plan and Use of Funds
Lenders will want to understand how you plan on using the loan, and how it aligns with your business plans for growth. Providing a detailed strategy on how the funds will help your business succeed can improve your chances of being accepted for a loan. 

Debt-to-Income Ratio
The debt-to-income ratio of your company will likely be assessed when you are applying for a loan, as this can indicate to the lender your ability to take on more debt and afford to repay it. Having a lower debt-to-income ratio demonstrates that the business isn’t taking on more debt than it can manage, which is attractive to lenders. 

The Business Industry 
Lenders will often assess the industry that a business operates in, as some industries are considered less risky than others. Industries like construction, retail, hospitality, and agriculture are viewed as higher risk than industries like healthcare, education, utilities, and insurance. 

Collateral
For secured business loans, offering collateral can improve your chances of being accepted for a loan, especially if your credit history is lacking. Lenders may require collateral, such as property, equipment, or inventory, as a security measure to reduce their risk.