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What lenders look for when assessing business loans

Approved, loan approval

Deciding whether to approve or reject business finance applications is a detailed process, and knowing what lenders want to see can enhance the flow of credit to the business, a finance broker has said.

Speaking on an episode of the My Business Podcast, Nancy Youssef of Classic Finance said there are a few steps SMEs can take to boost their prospects of securing finance from a bank or other lender.

Apply for the right type of funding

It sounds basic, but according to Ms Youssef, many people in business can and do set themselves up for rejection by not knowing exactly what they want and where to get it from.

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“We assume that people know exactly where to go to get money, but as you just mentioned, with the emergence now of fintechs and non-traditional lenders that are coming into the space, it’s increasing competition. And certainly, for business owners, there is a lot more choice out there today,” she said.

“A lot of the time, business owners may try and do it themselves, or they may just go to a bank that they’ve already got a relationship with.

“That particular bank doesn’t [necessarily] have a product that would suit whatever challenge, or business challenge, they may have, or maybe their policy doesn’t allow for that particular applicant.”

Ms Youssef said that this is where someone like a finance broker can help, by identifying the various finance options and providers that are available that cater to the particular needs of the business.

“I’m not giving brokers a plug, but I am: I’d say meet with somebody and actually get some advice around, ‘Look, I’m looking at borrowing X amount of money in the next month or two. I need it for this particular challenge. What do I need to do?’,” she explained.

Show consistency in financial performance

According to Ms Youssef, another basic is to remember that a lender’s main purpose is not to support your business, but to protect their own — and that means assessing the likelihood that any funding will be repaid.

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“Lenders mainly want to see that if they’re going to lend this money, they’re going to be able to get it repaid, and so consistency is important,” she said.

“If there are fluctuations in one financial year compared to the next, lenders will normally want to know why that fluctuation has occurred. If there’s expenses that are out of the norm, they normally want to know what that is.”

Pay your other bills on time

“Certainly, with positive credit reporting now, paying all your bills on time [is important] so your credit score stays pretty strong,” the broker said.

“If you have existing facilities, mak[e] sure that your repayments are also well conducted, because lenders will look at that historic trend in how you manage your repayments.”

Convey stability

This is the most important point of all, according to Ms Youssef: convey to the lender a sense of stability.

“Stability in your residential status, stability in your business,” she said.

“Unless it’s a seasonal kind of business and there’s an explanation for it, I think just maintaining stability, consistency and good conduct, as well as a clear credit rating, are the things that they’d be looking at.”

Adam Zuchetti

Adam Zuchetti

Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016. 

The two-time Publish Awards finalist has an extensive journalistic career across business, property and finance, including a four-year stint in the UK. Email Adam at This email address is being protected from spambots. You need JavaScript enabled to view it.

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