During January, I’ve been reflecting on enquiries received and lending applications submitted during the previous year. Comparing enquiries that progressed to completion to those which stalled or resulted in declines; I’ve noted down ten tips for those business owners and property professionals looking to get finance in place during 2022.
1. Do your research
It’s better to do your research and have a decent idea of the lender terms, fees, and interest before committing to a new project.
If you’ve put a deposit down on a property which turns out to be unmortgageable, for example, then you could find yourself significantly out of pocket.
2. Use a broker
The easiest way to do your research is to use a broker (me, preferably!)
I provide free lending reviews. It’s my job to know the market and source you a good business lending deal. You’ve got nothing to lose by asking me what’s available.
Only approach one broker at a time too – lenders often get wary when they receive the same proposal from multiple brokers, so it doesn’t usually pay to go shopping around in a haphazard fashion - it just annoys everyone really.
3. Be realistic
A lender can’t always tick every box on your wish list and sometimes you need to compromise on one thing or another, especially if your requirement is unusual or your trading history has been patchy.
It helps if you understand this from the get-go and work with your broker to prioritise what’s most important to you – whether it’s paying a little bit extra in interest, giving a personal guarantee, or agreeing to a commitment period that’s longer or shorter than you’d ideally like.
4. Don’t overcomplicate things
Lenders like things simple. The more complex a request, the more difficult it is to get an application over the line. If you’re a property investor, understand that the following are some of the criteria that can complicate an application or increase your rates:
Complex ownership structures
Housing of vulnerable tenants
Listed and unusual buildings
Plans to redevelop or repurpose the property
None of those things are fatal to a lending application, but you should appreciate that a lender will have to undertake extra due diligence and you might have to pay more than you would for a straightforward house being let out to a professional on an AST.
If you’re not prepared for the extra admin and expense that comes, then don’t involve yourself in things that make lending applications more difficult.
5. Don’t wait until the last minute
If you foresee a potential cash requirement down the line, make sure you have the lending facilities in place beforehand. If you leave it too late, you run the risk of not paying your bills or taking out an expensive short-term loan at the last minute. Lenders dislike bounced payments on your bank statements and/or multiple short-term loans on your credit file.
Ideally, lenders want you to approach them before you have a cashflow issue.
6. Protect your personal credit rating
If you’re a limited company, your business is a separate legal entity. However, lenders are interested in the people behind the business too and will credit search the Directors. Your business may have the perfect credit rating but if you’ve been missing your personal mortgage payments then it’s likely to be a no from most lenders.
Equifax and Experian are two of the most used credit reference agencies and both offer a free trial, enabling you check your personal credit score.
Even if you have an offer in place, don’t do anything that might jeopardise the application until you’ve drawn down on the lending facility. It’s not unusual for lenders to credit check again and/or ask for additional bank statements prior to drawdown.
7. Be upfront
It’s better to be upfront with brokers and lenders about potential issues early doors – poor personal credit, HMRC and trade creditor arrears, legal problems, related parties, and past instances of lenders rejecting you or managing you away tend to get uncovered during the underwriting process.
It saves everyone time and money if you’re upfront about these things from the outset. It also gives a lender comfort that they’re dealing with an honest, straightforward individual. If something negative is disclosed early, your broker and lender can often work around it.
I want your lending application to get approved - I only earn commission if a lending application is successful – but I know that trying to pull the wool over a lender’s eyes rarely works and it just isn’t how any quality broker conducts business.
8. Provide additional information, if you think it would help
Just as you should be upfront with negative information, you should also let us know things which might give a lender more comfort – a solid track record in a similar venture, a plausible explanation for a credit blip, some industry insight that suggests you know your market – these aren’t things that are asked for on a typical application form, but they can go some way to backing up a lending application.
Handy booklets or presentations that summarise your business plan or an upcoming project are always well received by lenders and can help fast-track an application.
9. Get organised
Provide documents and information in a timely manner. Looking at the enquiries I receive, this is the number one reason that lending applications don’t progress.
No one enjoys admin. However, if you’re wanting to borrow money, then a lender is going to want to see documents - sometimes, a lot of documents. It’s good to have these in order and ready to provide.
The smoothest applications are the ones where documents are provided promptly, in a complete format. If you’re too slow or there are bits of information missing, lender terms and rates risk being withdrawn before a formal offer is made.
It can help if you have an appropriate accounts package and a decent accountant to help you provide reliable accounts and management information to lenders.
10. Be persistent
If a lender rejects you, for reasons they’ve misunderstood, then challenge them. For something on your personal credit file that shouldn’t be there – correct it. Filed accounts not strong enough – provide MI and forecasts. Sometimes a lending decision can be reversed.
Of course, it’s in everyone’s interest that a lending application completes with the first lender it’s placed with but sometimes, for whatever reason, it doesn’t. It’s frustrating having to start the process again but with the next lender approval can come super-fast – all the necessary documents can be provided instantly; all the issues are understood from the outset and the new lender appreciates the required urgency. So don’t give up.
If you’re a business owner or property professional looking to get finance in place this year, please contact me on 07485 724 024 or email ed.wileman@editfinance.co.uk
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