Working to secure a business loan in the UK with a bad credit history may seem like a daunting job. The big banks may have rejected you and you are now left frustrated and confused where to go.
However, here is the critical fact that you should listen to, your lesser than perfect credit report is not the end of your dream. Although this trip will need more planning and a new approach, it is not entirely out of your budget.
This guide will take you through the practical steps that will increase your likelihood of obtaining a business loan, that is specific to the UK. We’re changing your funding problem into a success story.
What is your credit score in the UK?
To begin with, you must be clear about your position. Like financial report cards, your personal and business credit scores are scrutinised by lenders. Experian, Equifax and TransUnion are the primary agencies in the UK. These agencies will provide the legal right to free checking of your report.
Check whether there are any mistakes, e.g. the information is old or the address is wrong and refute it right now. The most important first step to dealing with your score is to understand your score. You do not know what to fix.
Why Lenders Care About Credit History
Your credit history helps lenders to determine risk. They would like to have a history of responsible borrowing and on time repayments. A low score implies that you could be a bigger risk, therefore, making them unwilling to lend. It is not personal, it is a business decision of calculation.
They must be assured of repaying the loan in terms and conditions agreed. Being aware of this will make you view the situation through their eyes, and will enable you to create a better application which will cater directly to their needs.
Creating an effective Business Plan
Your business plan is the key to your secret. This document must be extremely strong when your credit is weak. It must map out both your business model, target market and unique selling proposition. Give specific financial estimates, how the loan will be utilized to produce growth and income.
An effective, realistic strategy will show a lender that you have a workable plan to succeed and a clear-cut way to pay back the money you have borrowed. It does not focus them on your previous financial mistakes, but on your potential.
Alternative Lenders
Do not be obsessed with the old-fashioned high street banks. The UK has a well-developed alternative finance industry that is specifically aimed at supporting the businesses of your kind. Think about niche lenders such as peer-to-peer lending platforms, invoice finance, or asset-based lenders.
These lenders tend to evaluate on different grounds and they give more emphasis on the present health of your business and the potential of your business instead of looking into your credit issues in the past. They will provide a more elastic lending strategy that can suit a business with a wobbly credit record.
Secured Loan or Guarantor.
Security can go a long way towards getting your approval. A secured loan is secured by an asset that you possess, e.g., property or costly machinery. This provides the lender with something to recover in case you default and makes him/her far more comfortable.
Alternatively, another similar effect can be achieved by a guarantor, or a person who pledges to repay the loan in the event that you are not able to do so. The two options substantially minimize the risk of the lender, which they usually compensate by an increased probability of approval and possibly lower interest rates.
Being Open and Ready.
It is always better to tell the truth. Do you have a credit history? Disclose it in application. Write a short, factual explanation of the events which have contributed to your bad credit- maybe a past business venture has not worked or there is some unforeseen personal misfortune.
More importantly, you should then end with an explanation of what you have learned and what you have done to make sure that it will not occur again. This is a sign of maturity, responsibility and also self awareness, which lenders admire.
Considering the Agreement Carefully.
Read each and every line before you sign any agreement. Pay close attention to the Annual Percentage Rate (APR), the total cost of the loan, the repayment schedule, and any additional fees or charges.
Understand the consequences of a missed payment. Make sure that the repayments are comfortably within the cash projections of your business. This step cannot be taken in a hurry; a poor loan arrangement can do your business worse than lack of a loan.
Conclusion
Getting a business loan with bad credit in the UK is certainly not easy, but it is not impossible. The trick is to stop approaching the old banks and instead approach hundreds of other possible lenders who see your business plan and its potential and not your past.
Knowing your credit report and writing an effective business plan, as well as thinking about such options as secured loans, will offer you a strong argument that will convince the lenders. It is important to remember this is a process of building trust and proving your business is a good opportunity to invest in.
Ready to find your solution? Connect with our specialist team today for a free, no-obligation consultation on any loan query.
