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How do lenders decide on whether to give your business a loan?
A lender will look at a number of factors before deciding to lend to your business.
Your business credit profile is a key consideration in this decision making.
UK credit agencies record 5 elements in working out your profile:
- Your payment history
- Your total amount of debt
- Time & length of credit
- Types of finance you already have
- Recent applications for finance
1 and 2 contribute most to your business credit rating. As well as the factors above there are also other considerations that come into play e.g. amount of existing credit you have, number of credit cards held, time you have had a credit history.
As you build up your business credit score is more about your business rather than your personal situation.
How can I improve my credit score to get a business loan?
If you wish to improve your credit score you should consider:
- Making any credit payments on time
- Make sure you are on the electoral register
- If you are a limited company you file full rather than abbreviated accounts at Companies House
- Build up use of your business current account to evidence turnover
- When inquiring about finance ensure only that you get quotes until you are ready to proceed.
What to avoid when applying for a business loan
Things to avoid include:
- Making multiple finance applications with different lenders – credit searches or “footprints” show on your credit record. Multiple searches can have a negative impact on your credit rating.
- Exceeding your overdraft limit with your bank without prior approval
- Missing payments on a loan or credit card