From time to time most SME businesses will need funding and will approach a lender to meet this need. Unfortunately post credit crunch lenders will scrutinise funding applications and in our experience the following six are the main reasons a lender will block a funding application. If you’ve experienced any of these then contact us as we will be able to help.

1) CCJ’s

County court judgements are bad news for lenders. It is tangible proof that an SME borrower has defaulted on a previous credit arrangement (even if it is simply a plain vanilla supplier credit arrangement). It is possible (but unlikely) that a CCJ could registered against a company without the directors being aware. It is critical that you make sure you know and understand your finance processes, and that Companies House records are checked regularly.

2) Company has arrears with HMRC (VAT PAYE/Corp Tax)

Time to pay arrangements were once seen as a great way to get free (or very cheap) funding. Unfortunately banks soon made the link between distressed businesses and TTP arrangements, and now the existence of a TTP arrangement is usually one of the first questions asked by a lender. If one does exist, it will have negative results.

3) Gearing is too high/no spare debt capacity

Any SME business will have a limit to the amount of debt they can pay back (service). A lender will want a clear understanding of the current amounts owing and what the respective debt repayments are. The cash generated by the business will service a certain level of debt – any funding requested outside of this limit will be certainly be refused.

 4) Out of date (or no) management information

Lenders will, quite rightly, expect to understand the performance of business that they are considering lending to. A lack of decent management information (monthly management accounts) will ring lenders alarm bells. Lenders expect SME business directors to know their business and be able to explain the management information – performance, trends, variances, etc.

 5) Lender doesn’t understand the reason for the lend

All lenders will need to make an informed decision. Misleading the lender over the purpose of the loan will have a substantially negative impact on the outcome of a loan application. Provide the truth from the start and back it up with the appropriate information and assumptions.

 6) No business plan

Any proactive SME business should have a Business Plan. Clearly the depth and complexity of the Plan will vary according to the nature of the business. If an SME business requests additional funding it will usually be for an incremental project or to replace existing funding. A decent Business Plan will clearly explain the finances of the base business, and the impact of the incremental project or the replacement funding.

If you own an SME business and these points resonate – please contact