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My company can’t get any more credit – What can I do?

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Updated: 20th February 2020

Having an application for company finance turned down can be extremely stressful, particularly if you are relying on those funds to enable completion of a job.

While being rejected for credit may come as a shock remember than this could be for any number of reasons and may not necessarily be a direct reflection on your company. More stringent checks by lenders coupled with a strict affordability criteria mean many businesses, particularly start-ups, find it difficult to obtain credit regardless of their financial health or future prospects.

However, if you are an established company with a proven trading history and have previously held finance agreements, the reasons may be more specific to your company.

A rejection may be down to poor credit history – perhaps caused by missed or late payments on existing finance agreements – or else you may have a high level of existing credit potentially indicating an over-reliance on third party funding. If banks have reason to believe that your company is propped up by outside finance rather than by generating its own cash flow, they may be rightly nervous about extending a line of credit to you.

Think beyond traditional bank loans

If you are still keen to obtain finance in spite of receiving a rejection, there are a few things you can try. You may want to consider lowering the amount you are requesting or else look at less traditional forms of lending such as invoice factoring or asset-based lending (ABL).

Depending on what you need the funds for there may be a better way of funding it than a straightforward bank loan. For example, if you are looking to invest in new machinery for your business, it may be more appropriate to look at specialist ABL rather than a traditional high street bank loan.

Likewise if you are involved in an industry which is notorious for late payment or lengthy invoice terms, a form of funding secured on outstanding invoices could be a more effective and cost-efficient way of keeping your business running smoothly. If you are eyeing an expansion project, crowdfunding could be a way of securing the funds needed to accelerate your company’s growth.

Understand sub-prime loans and personal guarantees

Be wary about obtaining credit ‘at any cost’. As you exhaust potential lenders you may find the only ones willing to extend finance are those who levy interest rates far in excess of the market average. It is often the case that they will need you to give a personal guarantee in order to secure the loan.

This type of pricey credit may initially appeal to companies desperate to get their hands on funding; however, in the cold light of day and once the repayments start, many directors find themselves regretting this decision.

While being tied into a sub-prime product can be costly, it can be just as expensive to get out of one of these agreements. It is imperative that you think extremely carefully before signing up to any form of funding and ensure you fully understand the potential consequences of providing a personal guarantee before you commit.

Consider what you need the finance for

It is important to be clear on the reasons behind your need for finance. It is one thing to seek finance to fund the purchase of a specific asset in order to improve your production methods; it is another to repeatedly turn to outside funding to plug a gap in your cash flow.

While one improves the operational efficiency of your business, the other runs the risk of throwing good money after bad by temporarily propping up a company which is ultimately not working.

Borrowing in this way is extremely dangerous and can only last so long. Eventually you will run out of funding channels and if the core cash flow problems are not addressed, the business is unlikely to be a viable long-term prospect.  Using outside funding to conceal cash flow problems is only delaying the inevitable by kicking problems down the road which will only resurface when the money runs out once more.

Take on board the reasons behind a credit application rejection

While it may be frustrating when you cannot source the credit you need, receiving a series of rejections can be a wakeup call and can serve as a chance for you to step back and evaluate your business objectively.

If you have reached the stage where your finances are running dry and lenders are unwilling to advance you further funds, you would be wise to consider why you are being rejected. What is it that is making lenders wary of you? Why are they seeing you as a poor lending prospect?

Quite often the reason behind a credit application being rejected is the lender’s belief that you will be unable to meet the monthly repayments over the course of the borrowing term. Take a step back and be honest with yourself; would further borrowing push you close to the limit and make keeping up with your other financial obligations difficult?

This can be a tough thing to do but this type of thinking is vital in order to protect yourself, your company, and its creditors. After all for the vast majority of limited companies, the aim is to make money for their shareholders. If your company is not generating the income it needs to sustain itself financially, you need to consider whether it is ever likely to become profitable.

How Real Business Rescue can help

If your company has been turned down for finance or is experiencing other financial challenges, seeking professional advice needs to be a priority. The sooner you take advice, the more options will be open to you and the better chance you will have of saving your company.

Being refused credit is never ideal, yet it can highlight serious problems within your company which can then spur you into taking the action needed to rectify this. If your business is facing financial difficulties, contact the experts at Real Business Rescue.

You can arrange a free no-obligation with a licensed insolvency practitioner at any one of our 70+ offices across the country. Call today on 0800 644 6080.

Jonathan Munnery

Partner

0800 644 6080
Director Support - Business suffering from Cash-Flow Problems?
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