How an underwriter will look at your business accounts to establish if you are credit-worthy for UK asset finance
When you apply for commercial finance, asset finance, or a business loan in the UK, your details will be passed to an underwriter at the funder HQ who is looking to offer you the finance facility. The underwriters are tasked with keeping the level of bad debt for the funder to a bare minimum, therefore they need to make informed decisions based on their opinion of your company finances, in essence they are taking the gamble on whether they think your business will still be around in 3-5 years, and whether you will pay your bills on time. There are various software programmes that give overall credit ratings for businesses, this will be taken into consideration and is supplied by credit rating specialist companies such as Experian. The underwriters will also look at your accounts posted at Companies House to see your turnover, level of profit, time in business, gearing ratio and history of the directors.
Typically if your business has been trading for less than 3 years you will fall under a new start rate because you will have only posted 1 or 2 sets of accounts (if you are a limited company) and you business is still seen as high risk. The underwriter may offer you a facility but it may be at a higher rate to reflect the risk, sometimes they may also ask for Directors Guarantees as additional security.
If your business has been trading in excess of 3 years, then the underwriter will examine your turnover, what profits you are making (ideally both of these figures should be increasing year-on-year), and subject to no adverse credit such as CCJs, no credit ratings, late accounts, etc the underwriter will typically look for 3-4 times coverage of your net worth compared to the amount you are looking for on finance. For example, if you want a finance facility for £5,000, the underwrite would look for your company net worth to be at least £15-20,000 in order to consider offering you the finance. This is not a hard rule - some industries and equipment may require a higher net worth ratio such as software where there is no real tangible asset value or resale value to the funder should your company go bust.
The underwriter may also look at the directors of the company - are you a director of other companies? Are these companies a success or a failure? Do you have a string on dissolved/liquidated companies to your name? All these may affect the underwriters decision whether they give you a finance facility.
Your best bet with the underwriters is to be completely upfront and honest, give them as much financial information at the start as possible, including managements or draft financials for your current trading period. If you have been rejected elsewhere, tell them - they will find out anyway so it just saves time for everyone. If your company is new but you have a history in the industry, tell them about it. If you have a business plan - supply it. All of these will help you secure finance more easily and at more competitive rates.
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