What to do next if your business loan was declined

A declined business loan application is not the end of the road for your business. Lenders turn down applications for identifiable reasons, and once you understand yours, you can fix it, reapply with a stronger case, or turn to one of the 130+ alternative lenders on Capitalise's panel to get funded a different way.

This guide walks through the most common reasons lenders decline business loans, what your bank has to offer you next, how to check and improve your business credit score, and the alternative finance options that could still fund your business.

What are the most common reasons a business loan gets declined?

Lenders decline business loan applications for a handful of recurring reasons, here are the most common:

• A low or limited business credit score. Lenders use your credit score to judge how reliably you pay what you owe, and a poor score is one of the most common reasons for a decline.

• Affordability concerns. If your cash flow does not comfortably cover the proposed repayments, a lender will usually decline rather than approve a loan you might struggle to repay.

• Not enough trading history. Most mainstream lenders want to see at least six to twelve months of consistent trading before they will lend, so newer businesses are declined more often.

• An incomplete or inconsistent application. Missing documents, gaps between your bank statements and filed accounts, or outdated financial information can all trigger an automatic decline.

• Existing debt levels. A business that already has several loans or a high level of outstanding credit can look overextended to a new lender, even with a reasonable credit score.

• Your sector. Some lenders limit or avoid lending to certain sectors they consider higher risk, regardless of how your individual business is performing.

• The bank account you use. Not every lender accepts statements from digital or challenger banks. If you bank with one and were declined, this is worth checking before you apply again.

Does a declined loan affect your business credit score?

A single declined application does not damage your business credit score. What can affect it is applying to several lenders in quick succession, since each hard search leaves a mark on your credit file that other lenders can see. Checking your own credit score, by contrast, is a soft search and never affects your rating, so there is no reason to avoid reviewing it before you apply again.

Does your bank have to help you find funding elsewhere?

If you are declined by one of nine major banks, including Barclays, HSBC, Lloyds Bank, RBS, Santander, Bank of Ireland, Danske Bank, First Trust Bank or Virgin Money, that bank must offer to refer you to the government backed Bank Referral Scheme. If you agree to the referral, your details are passed to one of three designated finance platforms, Funding Options, Funding Xchange or Alternative Business Funding, by the end of the next working day, and they will try to match you with another lender from their own panels. The scheme covers loans, overdrafts, invoice finance, asset finance and business credit cards, and it is only available if your business turnover is under £25 million. Agreeing to a referral, or applying through the platform you are referred to, will not harm your credit rating.

At Capitalise, we work the same way, but without needing a referral. You can compare offers from our panel of 130+ UK lenders directly, including many that specialise in businesses that have already been declined by a mainstream bank.

How can you check and improve your business credit score before you reapply?

If you’ve recently been declined for funding, start by checking your business credit score. This gives you a clearer view of the information a lender may see, including factors affecting your score, outstanding County Court Judgements (CCJs) and your public record at Companies House. You can check your score by signing up to Capitalise.

If your score is the reason you were declined for funding, our Credit Review Service works directly with Experian to review your business credit profile and identify potential areas for improvement. 96% of businesses that go through the process see a positive change to their score, often within as little as five working days.

How long should you wait before reapplying for a business loan?

There is no fixed waiting period, but reapplying before you have actually changed anything rarely works. If your decline was down to your credit score, wait until a credit review or a few months of on time payments have had a chance to show up on your file. If it was down to affordability or trading history, wait until you have at least one more full month, and ideally a full quarter, of stronger figures to show. Applying to several lenders at once in the hope one says yes tends to do more harm than good, since it adds hard searches to your file without addressing the reason you were declined in the first place.

Could asking for a smaller loan improve your chances?

If affordability is one of the reasons your application was declined, borrowing a smaller amount could make the repayments more manageable and bring the application within a lender’s affordability criteria.

Before you reapply, use our business loan calculator to see how different loan amounts could affect your repayments. This can help you work out how much you can realistically afford to borrow based on your current cash flow.

Which alternative finance options can fund your business after a decline?

A declined business loan doesn’t necessarily mean you can’t access finance. Different types of business finance assess affordability, security and risk in different ways, so an application that doesn’t meet the criteria for a traditional business loan may still be suitable for other funding options.

For a full breakdown of every option, including peer to peer lending, crowdfunding and government grants, see our guide to alternative options after being declined for a business loan.

What if you have bad credit or limited trading history?

You may still have routes to funding. Specialist lenders offer bad credit business loans that may place more weight on factors such as your monthly revenue, cash flow and trading performance than your credit score alone. However, this additional risk is often reflected in higher interest rates or fees.

If you have limited assets to offer as security, it is worth understanding the difference between secured and unsecured business loans. Secured finance can sometimes offer lower rates or higher borrowing limits because the lender has an asset as security, while unsecured finance does not require you to put up a business asset but may come with higher costs or stricter eligibility criteria.

How can you strengthen your next application?

A stronger application addresses the reason you were declined, rather than simply changing the amount you are asking to borrow. Before you reapply, focus on the areas that could be affecting how a lender views your business:

• File your accounts on time. Lenders and credit reference agencies can use information filed at Companies House when assessing your business, so keeping your public records accurate and up to date matters.

• Pay suppliers and existing credit on time. Consistent, on-time payments can help build a stronger payment history and demonstrate that you manage your existing financial commitments responsibly.

• Reduce outstanding debt where you can. Paying down existing borrowing can improve your available headroom and make your business look less financially stretched when you apply for new finance.

• Prepare an up-to-date cash flow forecast. Ideally, forecast the next 12 months so you can demonstrate how the proposed repayments would fit alongside your existing costs and expected income.

• Keep clear, consistent business bank statements. Where possible, use a mainstream business bank account and keep your business finances separate from personal spending. Lenders may review your bank statements as part of their affordability assessment, so having clear records can make it easier to demonstrate how your business manages its cash flow.

Watch: what happens when a lender says no

If you would rather watch than read, this short video covers what actually happens when a business lender declines your application, and the practical steps to take next. Watch the video below.

Apply for a business loan with Capitalise

Being declined for a business loan doesn’t mean you have to stop looking for finance. Capitalise can help you explore your options by comparing business finance from more than 130 UK lenders, including specialist lenders with different eligibility criteria and approaches to assessing affordability and risk. Apply for business loan finance today to see what you could be eligible for.