Surge in SME business lending: Expert warns of application mistakes to avoid
With the latest figures unveiling a promising 15% surge in successful business loan applications for SMEs in the first quarter of 2024, experts warn of the mistakes to avoid for the best chance of being accepted.
The uplift comes as a much-needed relief to SMEs, with data from the British Business Bank showing the number of businesses being offered all capital requested dropped from 84% in 2020 to a mere 63% in 2023 in the aftermath of the pandemic.
Recognising the challenges that SMEs face and noticing a welcomed shift with the latest increase in successful loan applications, the experts at money.co.uk business loans offer their insight and tips.
SME success in obtaining finance from the first provider in recent years:
| Year | Offered any finance (net) | Offered all finance | Turned down |
| 2023 | 76% | 63% | 14% |
| 2022 | 75% | 64% | 14% |
| 2021 | 85% | 80% | 5% |
| 2020 | 89% | 84% | 4% |
SMEs have faced a more challenging environment in securing funding in recent years. However, a the significant shift so far this year heralds a change for the better.
This shift comes after pressure exerted by the SME finance inquiry, which saw the influential Treasury Committee accuse industry lenders of hindering growth by making borrowing more difficult.
Why might a business loan application be rejected and how can you avoid this?
Poor credit score: Lenders look at your credit score to assess your creditworthiness. A low credit score or significant debt can increase your loan rejection risk. You should settle or at least minimise all debts before applying for a loan.
Insufficient cash flow: Lenders need evidence that your business generates enough cash to repay the borrowed amount. You should be able to demonstrate consistent cash flow and profitability by keeping detailed and accurate financial records to show to lenders.
Risky industries: Companies in high-risk industries might struggle to secure loans due to lenders’ perceived instability. A solid business plan that demonstrates how loans will be repaid and an established business history can help prove success to lenders.
Lack of collateral: Some loans require a security measure in the form of collateral. Your loan application could only be accepted if you provide collateral, such as your property. It is essential to only offer assets that you’re comfortable with forfeiting if you can’t repay the loan.
Incomplete or inaccurate loan application: Missing or incorrect information on your loan application can mean instant rejection. Always fill out applications carefully and check them over to ensure all details are correct.
Kyle Eaton, money.co.uk business loans expert, comments: “When applying for a business loan, SMEs often face a strict and complex application process that can significantly impact their ability to receive the funding required. This emphasises the importance of thorough preparation and strategic planning when applying for business loans.
“A poor credit score is one of the most common reasons for rejection. Lenders often view a business’s credit score as the most important indicator of financial reliability. SME owners should regularly monitor their credit reports and pay all bills promptly. Consider methods to improve the credit score, including paying off debt and maintaining various credit types.
“Another crucial step is remembering that different lenders have varying criteria. Research and identify lenders that specialise in your business industry or have a history of lending to similar businesses. Building a relationship with a lender who understands your business industry can improve your chances of securing a loan.
“Consider partnering with a financial advisor who specialises in obtaining SME financing. Their experience and expert knowledge can help you craft a robust loan application and identify and rectify the potential drawbacks of your application.”