7 reasons firms are refused a loan
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Ashley’s COO, Jeffrey Burton reveals the most common barriers to raising finance
As banks have tightened their lending criteria, even the most solid businesses may find it hard to raise finance.
Sometimes their application for funding is rejected over relatively minor issues. In other cases they are penalised because they are suffering a temporary cashflow problem or a misfortune that is not of their own making. If good businesses can’t get a bank loan, there is little chance for those with a poor credit history!
As an alternative finance provider, Ashley Business Finance helps many firms which have been turned down by other lenders. This gives us an insight into the most common barriers that companies face in accessing finance. Here are the seven key reasons why our customers have been refused credit in the past:
1.They are in the ‘wrong industry’
Mainstream lenders take a dim view of some sectors. At present the energy efficiency industry appears to be out of favour. However firms installing equipment do need access to funding to keep going because in many cases payment depends on a government grant that takes time to come through.
2.They have tax arrears
Companies are often declined finance because they owe money to HMRC, even if that is why they want to borrow it in the first place. They may be sound businesses but are having cashflow problems and have not set enough aside to pay the taxman.
3.A major customer has gone bust
The collapse of a big business can come out of the blue and bring down many of its small suppliers – the so-called ‘domino effect’. Suppliers in this situation may need an injection of cash to tide them over but the banks are unlikely to help. One small business we funded recently had lost £80,000 as a result of the Phones4U collapse. It is now getting back on his feet.
4.A previous business has failed
We know that many successful entrepreneurs suffer a business failure early in their careers. However directors of a failed company are unlikely to find much forgiveness – even if it was through no fault of their own.
5.They are starting out
More and more people want to start their own business but finding the funding is another matter. In today’s market, most lenders consider start-ups as just too high a risk.
People who have committed a crime or professional misdemeanor may become financial outcasts. In one case a couple were unable to find funding for their business because the husband was a former doctor who had been struck off for committing fraud. We took the view that, having successfully rebuilt his life and found a new career, he was unlikely to put it all in jeopardy.
7.They are getting divorced
During the divorce process, assets are frozen while a financial settlement is negotiated. The situation will be resolved eventually though a bitterly disputed case can drag on for some time.
Jeffrey Burton is Chief Operating Officer of Ashley Business Finance