When the bank says no, the search has only just started

Every week I speak to business owners who have been turned down by their bank and have quietly decided that is the end of it. They put the plans back in the drawer, stretch the overdraft a little further, or pay the tax bill late and hope for the best. In most cases the decision was never about whether the business could borrow. It was about whether that one lender, with that one set of rules, wanted to.

Here is what I have learned arranging funding for small firms across the UK, and what I wish every owner knew before they took a no as the final word.

A bank no is a narrow verdict

High street banks run a small number of products through a scoring system built for low risk and high volume. If you have been trading under two years, had a bad quarter, carry a historic CCJ, run a business in a sector the bank is cautious about, or simply asked for an amount that does not fit the box, the answer is no. Nothing about that tells you what the other lenders in the market would say.

There are well over a hundred lenders in the UK who fund small and medium sized businesses, and they do not all look at the same things. Some care most about turnover and bank statements. Some lend against the kit you want to buy. Some lend against the invoices you have already raised. Some are set up for exactly the situation that made the bank nervous.

The routes most owners never hear about

Unsecured business loans from specialist lenders. These lenders look at recent trading, often the last six months of bank statements, rather than three years of accounts. A business turning over £300,000 a year with steady card takings can often borrow £30,000 to £100,000 over one to five years, with a decision in days rather than weeks. The rate is higher than a bank loan, but the money arrives and the business keeps moving.

The Growth Guarantee Scheme. This is the government backed successor to the Recovery Loan Scheme, run by the British Business Bank. The lender gets a 70 per cent guarantee from the government, which means lenders on the scheme can say yes to businesses that fall outside their normal rules. It covers term loans, overdrafts, asset finance and invoice finance of up to £2 million. It is for businesses that want to invest and grow, and a lot of owners have never been told it exists.

Asset finance. If the money is for a van, a machine, a fit out or IT, the asset itself is the security. That changes the lender's risk completely, so businesses that could not get an unsecured loan are often approved for hire purchase or a lease at a sensible rate, with the cost spread across the life of the equipment.

Invoice finance. If you sell to other businesses on 30, 60 or 90 day terms, you are effectively lending your customers money for free. Invoice finance releases most of the value of each invoice the day you raise it, and the facility grows as your sales grow. For a firm that is profitable on paper but always short of cash, it is often the right answer, and it is nothing like the clunky factoring of twenty years ago.

VAT and tax loans. A tax bill is not a sign of a struggling business, it is a sign of a profitable one. Spreading a corporation tax or VAT bill over three to twelve months with a short loan keeps the cash in the business and keeps HMRC off the phone. Several lenders do nothing else.

Revolving credit facilities. Think of these as a flexible overdraft that does not depend on your bank. You are approved for a limit, draw what you need, repay when you can, and only pay for what you use. They suit seasonal businesses and anyone who wants a buffer without taking a lump sum they do not need yet.

Merchant cash advances. For shops, restaurants, salons and anyone who takes card payments, an advance is repaid as a small percentage of each day's card takings. Quiet week, smaller repayment. There is no fixed monthly amount, which is why so many hospitality businesses use them to fund a refurbishment or get through January.

What the lenders who say yes actually look at

Across all of these, the questions are more consistent than owners expect. Can we see the money coming in, usually through six months of bank statements? Are the directors homeowners, or is there another form of comfort available? Is there a clear purpose for the funds that makes commercial sense? Are the filed accounts at Companies House up to date, and do they show positive shareholder funds? Is there a plan for repaying?

A lender will forgive a lot if those basics are in place and explained honestly. What they will not forgive is a surprise, so if there is a blemish, say so up front with the story behind it.

Three things to do before you apply anywhere

First, get your bank statements and last filed accounts together before you ask anyone for anything. Every lender wants them and the owners who have them ready get decisions in days.

Second, decide what the money is for and how much you really need. "As much as I can get" is the fastest route to a no. "£60,000 to buy two vans and fit them out, repaid over four years" is the fastest route to a yes.

Third, do not apply to lender after lender in turn. Every hard search sits on your file and each one makes the next lender more nervous. Find out where you fit first, then apply once.

That last point is really the whole argument. The UK has a broad and competitive business lending market, and the bank you have had an account with since you started is one small corner of it. A no from them is information, not a verdict. If you want to see how it works in practice, our guide to small business loans walks through the options lender by lender.

Simon Palmer is a director of Smart Funding Solutions, a whole of market commercial finance broker in Chester.

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