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Reviewed by
Chris Andersen
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Reviewed by Chris Andersen

Chris is a licensed Insolvency Practitioner, regulated by the IPA since 2014. He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.

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28th November 2022

In the business climate of today, it has become increasingly difficult for UK businesses to acquire a loan from a bank in order to further their aims and sure-up their finances.

This is despite the fact that many smaller enterprise owners desperately require assistance from credible financial institutions such as banks in order to stabilise their cash flow problems and pursue expansion, so their success can be passed on to improving the wages and standard of living of their employees.

The reality of the situation is that banks are not going to change their ingrained lending policy anytime soon, and in a post-recession era caution will always prevail when it comes to making financial decisions. As such, the mantra ‘if you can’t beat them, then join them’ is arguably the best governing doctrine to adopt in order to counteract tighter lending conditions, and obtain the finance required to take your business to the next level.

The following are our tips to consider in order to give yourself the best chance of acquiring a bank loan, including advice about how to communicate with financial officials and which measures to take prior to your loan meeting in order to be well placed for success with your application.

1) Start by conducting a personal credit rating evaluation.

This is integral to preventing you being doomed from the start when you go into a loan meeting, as banks will almost always perform a check on your personal credit history as well as your businesses when considering a business loan application. If you are aware that you have a number of loans against your name at present that you are currently defaulting on, then you will need to pay these off in full in order to give yourself the best chance of success with your loan application. Similarly, if you have a history of paying loans late, then it would be worth waiting to apply for a loan until that time that you take measures to improve your credit rating.

The best step to take is using either Equifax or Experian to determine where you stand with your credit history, and then use the results to ascertain what the next logical step to take is to bolster your chances of obtaining a bank loan.

2) Improve your credit rating.

Though some company directors will not need to take this step to bolster their prospects of obtaining a bank loan, it is nevertheless an advisable aim to pursue if you are someone who has identified that you have a poor credit rating. It can be argued that anyone with a poor credit rating should simply wait for 12 months and spend time improving their credit rating because the reality is that applications from individuals with a poor credit history will almost always be rejected by a bank, and failed applications have an adverse affect on an applicant’s credit rating, making it even harder to obtain a loan in the future. A number of banks provide a product called a credit builder card, which can be used for the sole purpose of restoring credibility to an individual’s credit rating for long term benefit.

3) Present them with the likely outcome in the worst case scenarios.

Taking this line during a presentation to a banker will go a long way to improving your chance of success because the reality is that banks want to be confident that you can uphold your loan arrangement even during difficult times. Try and provide them with documents that illustrate how your sales would hold up if they were 5-10% lower than your forecast, of how your finances would cope when interest rates rise. Peter Ibbetson, chairman of small businesses for NatWest and RBS, says: “Sensitise your cash flow forecast to see what happens if your assumptions are wrong. As a bank manager I would love to see three or four spreadsheets of different cash flow forecasts. The one thing the bank is looking for is a pretty good assurance that your business can afford to cover the interest and the loan repayments in a stressed situation.”

4) Memorise figures and proceed with confidence.

Your bank manager will be unimpressed if you fail to answer questions about your businesses turnover, profit margins and cash flow forecast, so make sure you are able to answer questions on these sharply and concisely. Exuding confidence during the meeting will also give further credibility to your application, so make sure you are fully prepared for your meeting to maximise your chances of success.

5) Consider appealing.

This course of caution will not be applicable to everyone, though some rejections can be overturned by following the formal banking appeal procedure, as different individuals within the same bank might view your application differently. Since the appeal procedure was set up in 2011, around 40% of rejections have been overturned, leading to small businesses acquiring an extra £35 million in finance. If you believe you’ve had your loan application unfairly dismissed, then consider an appeal, because you may just find yourself being given a second chance.   Peter Ibbetson says: “The appeals process will always take you to a different group of people within the bank who will look at it independently to see if there is another way of doing it. Quite often we will find a different way of doing things once we have more information.”

6) Apply to a different bank if rejected for reasons outside of a poor credit history.

If your current bank rejects your loan application, look to make a renewed attempt to acquire a loan from a different one. Banks range in their attitudes, and one bank may be more prepared to lend to businesses in your industry than another.

7) Consider alternative finance.

If all of your attempts to acquire funding from a bank fail then there is no need to fret, because there are a number of other lending platforms that you can access. In particular, look at peer-to-peer lending sites and see whether you are able to obtain funding from people registered for saving purposes. Crowdfunding is also worth considering and is becoming an increasingly used method to obtain finance by businesses. You could even hold closed door fundraisers and invite investors who you have made presentations to, in order to try and attain backing from a loyal following. And if all else fails, then you can always see whether your business is able to do invoice factoring, as this is another frequently utilised method for businesses to bolster their short term financial situations.