Many companies will turn to business finance at some time in their life cycle. It could be at the very beginning for help starting up, for growing to the next level, or even in an emergency due to something unforeseen.

But how do you know if you’ll be successful in your application for finance? The short answer is you won’t know for sure until you start making enquiries and carrying out some research, as there’s a huge variety of lenders, each with their own appetite for risk.

It helps to have some idea of what lenders might require in order to assess an application – and this comes down to eligibility.

All lenders will have eligibility criteria that you need to meet, and while every lender is different, we’ll go through some of the most common requirements here. Don’t worry if you don’t meet them all – it doesn’t necessarily mean the end of the road for your growth dreams. We’ll talk more about what to do if you don’t meet the criteria later on.

Why does eligibility matter?

Eligibility criteria is a lender’s means of calculating the risks associated with giving you finance. It ensures you’re not being loaned money that you can’t afford to pay back, as this would be bad for both you and the lender.

Typical eligibility criteria

Although it can differ depending on the type of finance you’re looking at, there are some fairly standard criteria that lenders will consider when assessing applications for funding. These include:

• Turnover and profit
• Bank statements from the last 3-6 months
• Filed accounts
• Overall trading history – 24 months is desirable
• Payment history – this could include your personal payment and credit history as well the credit history of your business.

Lenders will also evaluate factors such as how much you want to borrow, whether your business is making a profit and whether you have any County Court Judgements (CCJs). In addition, it’s likely a lender will look at your credit rating, which basically shows whether you’ve had finance before and if you have paid it back reliably, on time and in full.

What if you don’t meet eligibility criteria?

If you don’t meet all of the lender’s criteria – perhaps you don’t have enough trading history, your credit score is poor or you have a CCJ lurking in the past somewhere – don’t worry, all is not lost. This doesn’t mean that your business isn’t right for finance, it just means that you haven’t quite found a finance product that fits your particular situation. The wide and varied alternative finance market has given rise to a huge range of lenders and finance products. Many of these are very flexible and can work outside the criteria, especially if you meet some, but not all of them.

Personal guarantees and secured loans

If you don’t have a long trading history, or are perceived as a higher risk application, you may still be eligible for a secured loan. This is where you will be asked to provide some form of collateral that the lender will take ownership of if you default on your loan. This may also come with the requirement of a personal guarantee, which means you would be personally liable as an individual if the business can’t pay the money back.

Asset finance

If your business has a poor credit history, then another option is asset finance. This is a method of getting the new equipment, machinery, vehicles or commercial property you need. This form of finance lowers the risk for the lender as they will take ownership of the asset if you default on the payments.

Conclusion

Eligibility criteria can seem daunting, but if you know what’s likely to be expected then you can prepare what you need in advance. If you don’t tick all of the boxes for a particular type of finance, don’t worry because there will be an option that’ll be perfect for your unique situation. Expert advisors at Funding Options can also help match businesses with the most suitable finance.