Why business loans get declined, and what to fix

The short answer. UK lenders most often decline an SME because the cash flow does not cover the repayments, the credit file shows missed payments or County Court Judgments, the filed accounts show losses or negative net assets, there is not enough security, or the application does not hang together. Find out which one applies to you before you apply again.

How often it happens

In the SME Finance Monitor run by BVA BDRC (Q4 2024 report), 43% of the finance applications it recorded in the 18 months to the end of 2024 were declined, and the smallest businesses were declined most often. A decline is common. Applying again with the same papers usually gets the same answer.

The eight usual reasons, and what to fix

1. The cash does not cover the repayments

The lender works out the cash your business generates after tax and drawings and compares it with the repayments. If the margin is thin, the answer is no. Fix: a monthly business cash flow forecast that shows the repayments, the lowest balance and the headroom; or a smaller loan, a longer term or a bigger contribution of your own.

2. Losses or negative net assets in the filed accounts

Your last accounts at Companies House are the first thing a lender reads. A loss or negative net assets makes the lender ask whether the business can carry more debt. Fix: explain the cause with figures (a one-off cost, a lost contract that has been replaced) and show trading since the year end from your management accounts.

3. The credit file

Missed payments, County Court Judgments, accounts filed late or frequent changes of director all show up. Fix: check the business credit file and the directors' personal files, correct anything wrong, and file accounts and confirmation statements on time.

4. Arrears with HMRC

Unpaid VAT, PAYE or corporation tax tells a lender the business is already borrowing from the taxman. Fix: agree a Time to Pay arrangement with HMRC first, keep to it, and show it in the forecast.

5. An overdrawn director's loan account

Money taken out of the company beyond salary and dividends looks like cash leaving the business the lender would be funding. Fix: repay it or explain it, and remember the section 455 tax a company pays while it is outstanding.

6. Not enough security

Some lending needs security the business does not have. Fix: ask whether a personal guarantee, asset finance on the equipment, or the government's Growth Guarantee Scheme would close the gap.

7. Too little trading history

Many lenders want two years of accounts. Fix: for a new business, the government-backed Start Up Loans scheme lends to individuals (up to £25,000 each) with a business plan and business cash flow forecast instead of a trading record.

8. The papers do not agree with each other

A plan that says one thing, a forecast that says another and bank statements that say a third. Fix: build the plan, the forecast and the explanation from the same numbers, and tie the opening cash to the bank statement.

After a decline

• Ask why. Ask the lender for the main reasons. You cannot fix what you do not know.
• Ask about a referral. Under the Bank Referral Scheme, the largest UK banks must offer to pass your details, with your permission, to a government-designated finance platform that shares them with other lenders.
• Do not spray applications. Each full application can leave a search on your credit file. Fix the reason, then apply once, with papers that answer it.

Not sure which reason applies? The free business loan check reads your filed accounts the way a lender will and names the three things they are likely to ask about first.

Questions

For the full picture before you reapply, the business loan review reads up to five years of accounts and builds the forecast a lender expects. For a government-backed facility, see Growth Guarantee Scheme: what a lender needs.