The mainstream UK business banks all have appeals processes in place. This means if your business loan application has been declined then you can appeal.
All the banks have slightly different processes to follow, however to stand any chance of being successful it is not the process you need to follow but certain key things you need to consider and address. I will take you through these as the banks will not tell you these.
First, let’s get over some misconceptions about business lending declines. There are a few things you should know before you get started.
Misconceptions – Business Lending Declines
1 – You cannot complain about a decision. Strange as it may seem, you cannot complain or use any of the compliant channels to have your say about a lending decision. Unless something has been fundamentally done wrong then you have no right of complaint. A right to moan, yes. Banks can grant lending and decline lending as they see fit. Providing the reason for saying no is based on fact then you cannot complain through normal channels
2 – The Ombudsman does not deal with credit issues. Normally the final point of decision when it comes to complaining is the Banking Ombudsman. The Ombudsman does not deal with credit decisions, they will simply refer you back to the bank’s own lending appeals process
With those two common misconceptions cleared up, let’s look at what you should be doing.
What To Do First
Get your head round who makes the lending decision. Business loans are typically bought to a decision by one of two means. These are;
- Creditscoring. The use of a standardised system which takes various elements of your application and what the bank knows about you, then uses a non-human system to generate an decision (see what is creditscoring?)
- Credit Underwriters. Typically used for lending decisions over a set amount, normally around £100k. This is where your bank manager will prepare a ‘case’ for lending to you which is then put in front of credit underwriters to make the final decision
It can be quite easy to know which way your loan application was taken, credit underwriters ask more questions, creditscoring doesn’t.
Once you know how your business loan decision was reached then it is time to do something about it.
There is not a lot you can do here other than make sure the information used was 100% correct. In this case go to your bank manager and ask the following questions;
- Show me exactly what information you used in the creditscoring process?
- What could I have done to improve my chances of being approved?
Check the information used in your application to make sure it is all correct. The chances are it will be as most of the questions asked are fairly basic.
The second question is much more telling. There will be things said here that you may disagree with or that are more ambiguous or up for debate, BUT they will be influencing the bank’s decision so take them on board and look to address them.
One of the most common things that prevents more credit scored applications from being agreed is how your business current account is run. Before you apply again, or before you apply in the future then make sure;
- Your current account is operated within it’s limit
- You are not constantly up against the overdraft limit or trying to pay in on the same day as your direct debits are going out
- Your current account shows the genuine turnover through the business. Note cash businesses and cash transactions
- Everything going out of your account gets paid. One single returned item (bounced cheque) can stymie your chances of getting finance
This is where it gets more interesting and more important to understand how things work. Just appealing against a decision won’t wash, think of it as a court case and it makes more sense, in this regard;
- Check the evidence
- Has any new evidence come to light
- What are the bank’s rules and policies, have these changed
- Has my bank manager understood what I have told him/her, have they conveyed that information properly to the decision makers
The theory is that if the same details are presented to the bank a second time then, regardless of which individual underwriter actually looks at your application, then the same decision will be reached.
This part is key. You need to understand the information your bank manager has given to their credit team, NOT the information you have given to your bank manager. There is a difference here, it may look minor to you but it is the KEY part to successfully appealing any business lending decision.
There are some key questions you need to ask your bank manager when applying for business finance, however in this case you need to clarify several things, ask these questions;
- Can I see the report written about my business in support of my lending application
- Exactly (and I mean exactly) what are the reasons your credit underwriters declined the application
- Are there any specific policies or criteria relating to my business sector
- Why did you think the application you submitted would be approved
When you get this information you need to look at it with impartial eyes. Avoid anything based on opinion, look at the facts and make sure they are correct and correctly reported.
Check the following key things;
- Is the description of what you do correct
- Is the explanation of what you want to do with the money correct
- Are the numbers right
- Has where the numbers have come from been properly explained
- Do the profit and cash flow numbers look correct
- Has your level of relevant experience been properly detailed
Most of the mistakes made come from these areas. If you are at all unsure what to check or how to check them then give Lime Consultancy a call and we can talk you through things. Most banks use ratios, many of these may be new to most SME owners. If you see a ratio mentioned you don’t understand then check it here, also don’t me afraid to ask directly what the ratio means.
Earlier in the post I told you that it is not about the process. However once you have got your story straight, checked the bank records and checked everything is correctly reported then you need to follow the relevant bank’s appeals process. To make things easier there are some links to the main bank appeals channels below;
I hope this sheds some light on how things work. If you need any more detail on things then let me know and I will do what I can.
There is one final point. Sometimes saying ‘no’ can be the right decision. In that case get in touch so Lime Consultancy can clarify things and look at other options. It may be that the structure of the finance needs to change or that borrowing is actually not the right thing for your business at this point.
Any more questions or comments then please add them above, or contact us direct.
By Dave Farmer