Business Finance - What to Consider Before Choosing a Lender

Business finance can be an effective way to support growth, manage cash flow pressures, or invest in your business. However, choosing the right lender is just as important as selecting the right finance product.

Accepting the quickest or easiest offer without fully understanding the terms and conditions can lead to unexpected costs, personal liabilities, or funding that is simply not the best fit for your business.

We have put together a few points to consider: 

1. Companies House Profile

Your Companies House record is often one of the first places a lender will look. 

Before making an application, ensure that key information is accurate and up to date, including:

• Confirmation statement filings
• SIC codes and company activities
• Accounts and filing obligations
• Director history, connected companies, and any previous business failures

A complete and accurate Companies House profile can help avoid unnecessary delays and questions during the application process.

We can assist you with updating the information held at Companies House.

2. Finance Conditions

A finance facility should not be assessed solely on the headline amount, speed of approval, or how quickly funds can be released. Limited companies can often be asked to provide a director's personal guarantee, which can create personal liability if the business is unable to repay the borrowing.

Before proceeding with a finance option, the following should be considered:

• Consider whether the amount or scope of any personal guarantee is appropriate and seek professional advice where necessary. 
• Disclose any existing personal guarantees already provided for other facilities.
• Understand any director's loan account subordination requirements, as these may delay repayment of monies owed to directors.

3. Bank Statement Reviews

Many lenders will request company bank statements, and some may also ask to see personal bank statements from directors.

Depending on the lender, underwriters may review transactions that they consider unusual or inconsistent with the information provided during the application process. 

If there is anything unusual within the statements, it is better to identify and explain it upfront rather than have it raised during the underwriting process.

4. Is Invoice Finance the Right Fit?

Invoice finance can help businesses unlock cash tied up in unpaid invoices, but it is not suitable for every sector or customer base. Before choosing a provider, consider whether your industry, customers, and invoicing processes align with the lender's risk appetite.

Factors commonly considered by invoice finance providers include:

• Purchase orders, delivery receipts, and invoice quality
• Credit control procedures and the experience of those managing them
• Debtor concentration and customer payment patterns
• Credit notes, refunds, debtor days, and re-invoicing activity, particularly around VAT periods

5. Property Finance

Property finance can be more complex than other forms of borrowing because lenders may value property using different methodologies. Market value, vacant possession value, and restricted marketing assumptions can all influence how much a lender is willing to advance.

Before applying, some things to consider are:

• What security is required and whether assets are already pledged elsewhere
• Existing charges, deeds of priority, or negative pledge clauses
• The property's current use, planning status, and whether it is listed
• A realistic repayment or refinancing exit strategy

6. Look Beyond the Headline Loan Offer

When reviewing a loan proposal, look beyond the amount being offered.

Consider:

• Whether interest is front-loaded
• Whether the quoted interest rate is monthly or annual
• Whether the repayment term aligns with the purpose of the borrowing
• Any arrangement, administration, or early repayment fees

Be cautious of short acceptance windows that create pressure to sign quickly.

Every lender has its own criteria, and the information requested will vary depending on both the finance product and the provider.

A suitable finance partner should help you identify the most suitable facility for your business, understand the conditions attached, and ensure you remain fully aware of the risks, responsibilities, and repayment commitments involved.

The suitability of any finance facility will depend on your individual circumstances, and professional advice should always be obtained before entering into any agreement.

Thinking About Business Finance?

Seeking advice before signing a finance agreement can save significant time, cost, and stress further down the line.

We can help you understand the financial implications of the options available and introduce you to trusted finance specialists where appropriate.

Speak to your usual JS contact on 01942 292500 or email enquiries@teamjs.co.uk.