Why business loans get declined, and what to do next

A business loan is declined when the lender decides the risk is too high or the application does not fit what it lends. The British Business Bank says your business credit score influences how much you can borrow, your interest rate and whether you are approved at all, so credit history sits behind many refusals.

Lenders rarely give a single, neat reason. The table groups common causes, with what a lender may have seen and what you can do. It is general explanation, not a diagnosis of your case.

Ask the lender, then check what the credit reference agencies hold. A lender may only be able to give a general reason, but that is a start, and your credit files often explain the rest.

• Business credit report: the British Business Bank lists the agencies that produce them, among them Experian, Creditsafe, Credit Passport and Dun & Bradstreet. Many offer a free trial and a subscription for regular use.
• Personal credit file: the Information Commissioner’s Office says you have the right to a copy of the information held about your financial standing from any credit reference agency, free of charge. Ask for the statutory report to avoid subscription services. Directors, sole traders and guarantors are often assessed on theirs.
• Judgments: the official Register of Judgments, Orders and Fines can be searched through TrustOnline. See our guide to a CCJ for what it means.

Read the business report as a lender would. Look for late payments, overdraft use above agreed limits, filings that are overdue and any judgments. Then ask whether the figures in your own accounts and forecast tell a consistent story, because a lender will compare them.

If you find something wrong, such as an old address, a debt that is not yours or a judgment that was paid, ask the agency to correct it. Incorrect information can lead to someone being unfairly refused credit, the ICO warns.

Applying for credit can leave a mark, and a run of applications can look worse than one. The British Business Bank lists the number of times you have applied for credit among the factors in a business credit score, alongside late payments, exceeded overdraft limits and late filing of accounts.

That is the case for care before you re-apply. A soft search does not affect your credit score, while a full application to a lender may involve a hard search. Our guide to soft and hard credit checks explains the difference, and the guide to business credit scores shows what feeds the number.

Usually not. Reapplying with the same application to a similar lender tends to get the same answer, and extra applications can add to your record. Work out the reason first and change something.

• Fix what is fixable: correct credit-file errors, file overdue accounts and bring payments up to date.
• Strengthen the evidence: a clear purpose, current accounts and a realistic cash flow forecast.
• Right-size the request: borrow what the business can comfortably repay.
• Change the match: a different lender or product may see the same business differently.

Our guide to business loan requirements lists what lenders look for, and how to build a cash flow forecast helps with the affordability question.

Write down what the lender told you, what the credit files showed and what you changed in response. That record keeps the next application honest and consistent. If the facts about the business have not changed, a second application is unlikely to change the answer. If they have, say so clearly and attach the new evidence, such as updated accounts or a corrected credit file.

The Bank Referral Scheme requires nine of the UK’s largest banks to offer a small business they have turned down a referral to a government-designated finance platform. HM Treasury says the platforms are three in number, and that the scheme is still in force.

The British Business Bank says the scheme is open to a business that has been refused finance and has a UK address, carries out commercial activity as its main activity and is not part of a group with annual turnover above £25m. Your details are shared with the platforms only if you agree.

The alternatives are different products or different providers, because the reason for a decline often applies to one lender or one product and not to all. Which is suitable depends on why you were refused.

If your record is the sticking point, read business loans with bad credit. Whatever you choose, compare total cost, not only whether you were approved.

Capzy is a credit broker, not a lender, and is paid by the lender. If one lender has said no, we can introduce you to others whose criteria and products may suit your business better, using the lender directory as the map. We cannot promise any lender will say yes.

You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and every decision is subject to status and lender criteria. This is general information, not financial advice.