When businesses apply for a loan, the decision is rarely based on a single factor. Many applications fail not because the business is weak, but because the lender’s criteria were misunderstood from the outset.
If you want the full overview of business loan types first, start here: Business Loans Explained: A Complete Guide for UK Companies.
Trading History and Time in Business
Lenders often start with how long a business has been trading. More trading history generally means more data, clearer patterns, and lower perceived risk.
Business Turnover and Profitability
Turnover shows scale, but profitability and margins show whether repayments are realistically affordable.
Cash Flow and Bank Statements
Cash flow is a major factor in eligibility. Most lenders review 3–6 months of bank statements to understand income patterns, average balances, and existing commitments.
Credit History and Existing Debt
Business and director credit profiles are commonly reviewed, especially for unsecured borrowing.
If you’re exploring unsecured finance specifically, read: Unsecured Business Loans in the UK: Eligibility, Costs and Approval Times.
The Purpose of the Loan
Lenders want to understand what the funds are for and whether the borrowing makes commercial sense. A clear purpose often speeds up decisions and improves outcomes.
Loan Amount, Term and Affordability
Eligibility is closely linked to affordability. Applying for an amount that stretches cash flow is a common reason for rejection.
Common Reasons Business Loan Applications Are Declined
- Insufficient cash flow to support repayments
- Overly optimistic borrowing amounts
- Incomplete or inconsistent financial information
- High existing debt levels
- Unclear purpose for the loan
Understanding Eligibility Before Applying
Understanding what lenders look for helps businesses avoid wasted applications and unnecessary credit checks.
To compare costs properly before applying, see: Business Loan Costs Explained: Interest Rates, Fees and True Borrowing Costs.
And if speed is the key priority, this guide breaks down timelines: Fast Business Loans UK: How Quickly Can Businesses Access Funding?.