4 reasons why your business may struggle to obtain third party finance

4 Reasons Why Your Business May Struggle to Obtain Third Party Finance

June 24, 2025

BACKGROUND
Securing a business loan can be a crucial step in growing your company, managing cash flow, or investing in new opportunities.

However, many business owners find themselves facing rejection when applying for overdrafts or business loans. Understanding the common reasons behind finance or loan denials can help you better prepare and improve your chances of future approval.

KEY REASONS FOR STRUGGLING TO OBTAIN LOANS OR FINANCE

1. Poor or Limited Credit History
Lenders rely heavily on credit history to assess risk.

If your business—or you personally—have a poor credit score or a limited credit history, it signals to lenders that you may not be reliable in repaying debt.

This is especially true for startups or sole traders who haven’t yet built a strong credit profile.

Our Tip –  Regularly review credit reports, pay Suppliers and other bills on time, and apply for a business credit card to start building a positive credit history.

2. Insufficient Cash Flow
Even if your business is profitable on paper, lenders want to be able to see a consistent, positive cash flow to ensure that repayment obligations can be met.

If your cash flow is irregular or negative, it will raise red flags to a third party lender about your ability to manage debt.

Our Tip – Ensure that your bookkeeping records are routinely up to date, and if possible prepare regular cashflow reports and 13 week cashflow forecasts.

3. Lack of Collateral or Security
Many lenders require collateral—such as property, equipment, or more likely personal guarantees —to provide additional security for any business lending.

If your business doesn’t have specific assets to offer, or if you’re unwilling to provide guarantees, the third party finance may be declined.

Our Tip – Personal guarantees are becoming more frequently used by lenders to support business loans, so be prepared to sign these to access third party finance – but obtain insurance for these guarantees where possible.

4. Poor Business plan or lack of Clarity of Loan Purpose
Lenders want to know how you plan to use the funds and how it will benefit or grow your business in future years.

A vague or poorly constructed business plan, or a lack of clarity around the purpose and benefit of the third party finance, can make it difficult for lenders to justify the risk.

Our Tip – Ensure that you are clear as to how the third party funds will be used in
the business and/or how it will contribute to the continuing growth of the business.

FINAL THOUGHTS
Being denied a business loan or other third party finance can be frustrating, but it’s often a sign that there are areas of your business that need strengthening.

Always prepare ahead of applying for any loans or finance is key for all businesses e.g. ensure that the issues above have been addressed BEFORE making any application to a lender.

AND don’t do what most SME’s do – leave it to 14 days ahead of when you need the funds to start your application!!

If you are considering applying for third party finance for specific projects or ongoing growth of your business, then discuss it with us 3 or 4 months ahead of when you think you will need the overdraft or business loan etc. to provide you with the best opportunity to obtain the loan at the best interest rates!