Editorial

Things Lenders Consider Before Approving a Loan

The pandemic has created a difficult environment for businesses. Naturally many businesses have had to turn to a loan to maintain their cashflow and keep themselves ticking over. As a result though, the number of businesses approaching alternative lenders instead of high street banks has risen recently as companies search for the best possible deal. Below we explore the recovery loan scheme (RLS) and what lenders look at before approving applications.

Recovery loan scheme extended

Loans are looking more attractive than ever before for businesses, especially with the newsthat the recovery loan scheme is set to be extended in the latest budget.The scheme was a government backed plan to provide support for businesses. It means that companies can borrow up to £10m for individual businesses and almost £30, across a group – these funds can then be used for any legitimate business purchase. It’s more attractive for lenders too: they can offer RLS in situations where they’d turn down a loan or offer it at a higher interest rate.

Things lenders look at

But what criteria do lenders look at before approving a loan?Your credit rating is one of the most important factors. Lenders will evaluate your credit rating – the higher your score the better – and will use that to determine the risk involved in lending to your business.

Your cashflow is key too. Lenders will want to see that your cashflow is high enough for you to be able to pay off creditors as well as business expenses. The concern being that if your cashflow is too low you’ll have to pay business expenses as a priority ahead of loan repayments.

Lenders will also analyse your bank statements and financial history to evaluate your capacity to repay the loan. They’ll take a look at any previous loans you’ve taken out as well as looking at your credit to debt ratio. Overall, the health of your bank statements will go some way to convincing lenders that you’re a solid business to provide a loan to.

Are you eligible?

Eligibility is fairly simple. For a start, your business needs to be trading inside the UK. After that, the business needs to show that it’s either viable or was viable prior to the conditions imposed by the pandemic. Naturally, the company also won’t be eligible if it’s involved in insolvency proceedings.

If a lender approves the loan, then it can provide many benefits for a business. The recovery loan scheme can offer finance to be used for any legitimate business purpose. As long as you’re eligible and approved, this can help your business thrive following the pandemic.

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