Every lender has its own criteria, but the questions they are trying to answer are much the same. Can this business afford the repayments? Is it likely to keep trading for the life of the loan? If something goes wrong, how would the money be recovered? Understanding how lenders approach those questions helps you present your application well and spot any weak points before a lender does.
Affordability
Affordability is usually the deciding factor. A lender wants to be confident that your business generates enough cash, after its existing costs and commitments, to cover the new repayments with room to spare. They will look at your income, your regular outgoings, your existing borrowing and how much headroom is left.
Profit matters, but cash flow often matters more. A profitable business can still struggle to meet repayments if customers pay slowly or income is very seasonal. If your trade is uneven through the year, say so and explain how you manage it.
Accounts and financial information
Your filed accounts show a lender how the business has performed over time. They will look at turnover, profit, net assets, how much debt you already carry and whether the trend is improving or declining. For larger amounts, lenders often ask for up-to-date management accounts, and sometimes forecasts, to see how you are trading now rather than at your last year end.
If your last accounts show a loss or a dip, that doesn’t automatically rule you out. A clear explanation, backed by more recent figures showing recovery, can make a real difference.
Business bank statements
Bank statements give a lender an unfiltered view of how money moves through the business. Many specialist lenders rely on them heavily, especially for smaller unsecured loans. They typically look at:
- Regular income and whether it is consistent month to month.
- Your average balance and how often the account dips low.
- Unarranged overdraft use, returned payments and bounced direct debits.
- Existing loan or merchant cash advance repayments.
- Payments to HMRC and whether they are up to date.
A tidy account with steady income and few returned payments reassures lenders. Keeping business and personal spending separate also helps.
Credit history
Lenders check the business’s credit file and usually the personal credit files of the directors. They are looking at how reliably bills and existing credit have been paid, and for any defaults, county court judgments (CCJs) or insolvency events. A strong record makes approval more likely and can improve the terms on offer. Past problems narrow the options but don’t always close them, particularly if they are old, small or clearly resolved.
Trading history and the nature of the business
Time in business is a simple measure of resilience, so most lenders set a minimum. Six months is a common starting point for some specialist lenders, while others prefer two or three years, especially for larger or longer loans. Lenders also consider your sector, how dependent you are on a small number of customers and how established your market is. Some industries are seen as higher risk, which can affect which lenders will consider you.
Security and personal guarantees
For secured lending, the lender assesses what it can take as security and what it is worth. That could be commercial or residential property, equipment, vehicles or invoices. For asset finance, the asset being bought is usually the security. Lenders lend a proportion of the value rather than the full amount, so they will look at how easily the asset could be sold and how quickly it loses value. Specialist assets with a narrow resale market usually support a smaller proportion than property or widely used vehicles.
Lenders are lending to the business, but they are also judging the people behind it. They will consider the directors’ experience, their personal credit history and, for smaller companies, how closely the directors’ finances are tied to the business. Many lenders ask directors to sign a personal guarantee, particularly for unsecured loans. This means a director could become personally liable if the business can’t repay, so it is a serious commitment. Check whether the guarantee is limited to a set amount or unlimited, read the terms carefully and take independent legal advice before agreeing.
Putting it together
No single factor decides an application. A lender weighs them together, and strength in one area can offset weakness in another. Strong cash flow can balance a short trading history; good security can balance a thinner credit file. The most effective thing you can do is be honest and well prepared: explain the purpose of the loan, show how it will be repaid and address any weak points directly rather than hoping they go unnoticed.
This guide is general information, not financial advice. Loanleaf is an introduction service, not a lender or broker, and is not authorised by the FCA. Check the details with your broker or lender before you borrow.