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A Guide to Eligibility for Business Finance

Almost all businesses will seek out finance at one point or another. Some need it as a matter of urgency — to pay staff or a tax bill, for example. Some need it to fund their day-to-day activities — to buy stock to fulfil customer orders. And some need it to grow — to pay for new premises or new machinery.

business loans eligibility

Whatever the reason, the business applying for finance must fulfil some eligibility criteria. In this article, we’ve summarised the eligibility criteria you should be aware of and how you can prepare for them.

What is eligibility?

Eligibility is a process that will indicate to a lender or finance provider how risky it’ll be for them to provide you with finance. It should also let them know how much money they’ll be able to responsibly provide you with.

Why is eligibility important?

It would be a bad move for the lender to provide you with finance when you can’t really afford to repay them. They would be out of pocket in that scenario, so it’s in their best interest to carry out eligibility checks. It’s in your best interest too — if they hadn’t done the checks and you defaulted on your payments, your credit score and chances of getting funding in the future would be hindered.

How does eligibility work?

The extent of business loan eligibility checks you’ll need to do will depend on the type of finance you’re applying for. But there are some criteria you’ll almost certainly need to fulfil no matter what type of funding you’re looking for. This criterion is usually:

Turnover and profit
Bank statements from the last 3-6 months
Filed accounts
Overall trading history
Payment history — this might also include your personal payment and credit history as well as the credit history of your business.

With this information, the lender will have a fairly thorough summary of your business’s performance, health and potential for growth.

business loan eligibility

It’d be a very good idea to have information on all of the above prepared when you’re applying for business finance. Having the documents ready will make the whole process simpler and quicker for you and for the lender.

The lender will also need to determine some other eligibility details about your business and the finance you’re applying for. When you’re looking for business finance, the lender might evaluate:

The amount you’re looking to borrow — this will usually need to be less than 25% of your annual turnover, but there are lots of cases of businesses getting more than that so don’t discount yourself from the process of getting business finance if you’re looking for more than 25%
Your business should be making a profit
Your business should have been trading for at least 24 months — again this is desirable but not absolutely essential for all types of business finance
You should have no outstanding CCJs (County Court Judgements) or debts — this will depend on the finance provider

Your credit rating

Whenever you apply for business finance, the lender will run a credit check. This will tell the lender how reliable you’ve been with other forms of finance in the past. If you’ve made late payments for things like your phone bill or your mortgage, it could leave a mark on your credit report that lenders will be able to see.

It’s important to remember that your personal credit score and your business credit scores are separate, but both may be considered. For instance, if your business is very small and doesn’t have a long trading history, lenders will take into account your personal credit history when assessing your eligibility for business finance.

But if your credit score isn’t as high as you’d like it to be, don’t panic! As you’ll have read in this article, it isn’t the only way lenders assess your eligibility. And there are steps you can take to improve your credit score.

Personal guarantee

You might need to provide a personal guarantee to finalise your loan, particularly if you’re applying for an unsecured loan. A personal guarantee means that you’ll be personally liable if your business can’t make repayments to the lender, so you should think carefully and consider talking to a lawyer before agreeing to one.

Some loans are secured, which means you’ll need to declare collateral (for example, property or machinery) that the lender can take ownership of in place of payments if you default on your loan. You usually won’t need to give a personal guarantee with a secured loan.

Eligibility may not be fun, but it doesn’t have to be intimidating either. If you’re aware of the eligibility checks that business finance providers carry out, and you’re prepared when they come, it won’t be an intimidating process at all.


To get a real insight into when you may need to apply for funding, sign up to a 14-day free trial of Float today!

Conrad Ford

Conrad Ford

Conrad Ford is Chief Executive of Funding Options, recently described by the Telegraph as “the matchmaking website for small businesses and lenders”.