Business loan declined? What to do next

Lenders turn down business applications all the time, for reasons that have nothing to do with whether your business is any good. Each one has its own appetite for risk, its own rules about sectors and trading history, and its own scoring model. A no from one is not a no from all of them.

What you do in the next few weeks matters, though. Done well, the next application is stronger. Done badly, a string of rushed applications can make things worse.

Why business loans get declined

Most declines come down to a handful of reasons:

Some of these are about your business. Others are only about that lender. A business trading for nine months might be declined by a lender that wants two years, and welcomed by one that's happy with six months.

Step 1: ask why

Lenders don't always volunteer a reason, so ask. Do it politely and in writing, and ask specifically:

• Was it affordability, credit history, trading history, or something else?
• Which credit reference agency did you use?
• Is there anything that would change the decision, such as a smaller amount, a longer term or security?

You won't always get a detailed answer, because some lenders keep their scoring confidential. But many will at least tell you the main reason, and that alone tells you what to work on.

If you're a sole trader or small partnership and the loan was for £25,000 or less, it's regulated by the FCA. If a lender like that turns you down based on information from a credit reference agency, it must tell you which agency it used.

Step 2: check your credit files for errors

Credit files are not always right. An account that isn't yours, a debt shown as unpaid that you settled, or a wrong address can all tip a decision.

• Your personal file. Experian, Equifax and TransUnion are the three main agencies. You have a legal right to see your personal file for free, and it's worth checking all three, as lenders use different ones.
• Your business file. If you run a limited company, agencies including Experian, Equifax, Creditsafe and Dun & Bradstreet hold files on it. Check that your filings at Companies House are up to date and that nothing is recorded against the company that shouldn't be.

If you find a mistake, raise it with the agency. It will check with whoever reported the information and correct it if it's wrong. If an entry is accurate but has an explanation, such as a default during a serious illness, you can add a short notice of correction to your personal file so lenders see the context.

For more on how lenders weigh a weaker file, see business loans with bad credit.

Step 3: don't fire off more applications

The instinct after a no is to try everywhere at once. Resist it.

Each full application usually involves a hard search, a credit check that's recorded on your file and that other lenders can see for around a year. Several in a short space of time can look like you're being turned down repeatedly, or that you're desperate for money. That can lead the next lender to say no too, even if it might otherwise have said yes.

A soft search is different. It lets a lender or broker check whether you're likely to qualify without leaving a mark other lenders can see. Before any more full applications, use soft-search eligibility checks or a broker who knows which lenders are likely to say yes to a business like yours. That way, when you do apply properly, it's to a lender with a real chance of approving you.

Step 4: ask about the Bank Referral Scheme

If one of the larger UK banks turned you down, there's a government scheme designed for exactly this moment.

Under the Bank Referral Scheme, which has run since 2016, banks designated by HM Treasury must offer to refer small and medium-sized businesses they decline for finance to finance platforms that the government has also designated. A few things to know:

• It's your choice. The bank can only pass on your details with your permission.
• The platforms share your details with other finance providers, who can then get in touch if they think they can help.
• It's not a guarantee. It puts your application in front of more lenders. It doesn't mean any of them will lend.

If your bank declined you and didn't mention the scheme, ask them about it. GOV.UK has more on how it works.

Step 5: consider a different kind of finance

Sometimes the problem isn't you, it's the product. A business loan is just one way to raise money, and other types of finance rely on different things.

• Asset finance. If you need a vehicle or equipment, the asset itself secures the finance, which can make approval easier. See hire purchase vs leasing.
• Invoice finance. If you're owed money by business customers, a provider can advance most of the value of your unpaid invoices. Your customers' reliability matters a lot. See invoice finance vs a business loan.
• Merchant cash advance. If you take card payments, an advance repaid as a share of your card takings may be available. It's usually one of the pricier options.
• A secured loan. Offering property or other assets as security can open doors that are shut to unsecured lending, though it puts those assets at risk.
• A smaller amount or a longer term. If affordability was the issue, a lower monthly repayment may change the answer.

Also check whether you need to borrow at all. If the gap is a tax bill, HMRC's Time to Pay may help. If it's slow-paying customers, tighter credit control could close it.

An illustration. Tom's two-year-old landscaping company applies to its bank for a £40,000 unsecured loan to buy a mini digger and a van, and is declined. The reason, when he asks, is affordability: the company already has a cash advance taking a large share of its income. Tom checks his credit files and finds nothing wrong. Instead of applying elsewhere straight away, he clears the advance over the next few months, then applies for hire purchase on the two machines, where the equipment itself secures the finance. This is an example, not a prediction: every lender decides differently.

Step 6: fix the cause before you reapply

Once you know why, you can work on it. How long that takes depends on the reason.

That last one is the easiest to fix. Lenders move faster and decline less often when the paperwork is complete and consistent. Our guide to the documents you need for a business loan has a checklist.

If you're declined because the business is in serious financial difficulty, more borrowing may not be the answer. An accountant, a licensed insolvency practitioner or a free business debt charity can help you look at the wider picture.

Common mistakes after a decline

• Taking it personally, or as final. It's one lender's view, on one day, under its own rules.
• Applying everywhere at once. Multiple hard searches can make you look riskier to the next lender.
• Reapplying unchanged. The same application to a similar lender a week later will usually get the same answer.
• Grabbing the first yes. After a rejection, any offer feels like a relief. Still check the total amount repayable, in pounds, and what happens if you miss a payment.
• Paying an upfront fee to someone who promises approval. No responsible lender guarantees approval, and fees to unlock a loan are a well-known scam.

Questions people ask

Does a declined business loan affect my credit score?

The decline itself isn't recorded on your file, but the hard search from the application usually is. Other lenders can see recent hard searches, and several in a short time can make them more cautious.

Will the lender tell me why I was declined?

Often, if you ask, though some lenders keep the details of their scoring confidential. For FCA-regulated lending, such as £25,000 or less to a sole trader, a lender that declines you based on credit file information must tell you which credit reference agency it used.

What is the Bank Referral Scheme?

It's a government scheme under which designated banks must offer to refer small and medium-sized businesses they decline for finance to designated finance platforms. The referral only happens with your permission, and the platforms then share your details with other finance providers who may be able to help.

How long should I wait before reapplying for a business loan?

There's no fixed rule. Wait until you've fixed what caused the decline, which might take days if it was missing paperwork or months if it was affordability or recent missed payments. Spacing out applications also stops hard searches building up on your file.

Can I get finance after being turned down by my bank?

Often, yes. Banks tend to be among the stricter lenders, and specialist lenders may take a different view, especially of current trading. A different product, such as asset or invoice finance, may also be a better fit than a loan.