Obstacles to obtaining a business loan: the most common mistakes made, and the most common examples of blots in a company's credit history

A clean and transparent credit history is crucial for a business seeking a loan, and not all entrepreneurs realise that unanswered calls, numerous unexplained cash withdrawal operations, changes in ownership structure and other similar reasons can become obstacles to obtaining a loan. What are the most common mistakes and examples of blots in clients' credit histories? Julija Varneckienė, Managing Director of the online financing platform CapitalBox, shares insights on this, aimed at small and medium-sized businesses in the process of applying for loans.

Julija Varneckienė.
Julija Varneckienė.
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2024-01-24 10:32, atnaujinta 2024-01-24 10:33

What are the things considered blots in a company’s credit history?

According to J. Varneckienė, clients applying for a loan don’t always know and understand what documents they need to submit. In such cases, they will turn to accountants to help them reconcile those documents which are missing.

„Lenders often ask for business plans from entrepreneurs who want to take out loans, but we don't require them – our risk model doesn’t revolve around future data. It is important that the client's past financial statements be clear, with no credit history of unpaid debts (unless the client refinances the loan). At the same time, we tend to talk and communicate with the client“, says J. Varneckienė.

A clean credit history is defined by transparent payments in cyberspace – bank statements must display incoming income and payments for certain services. One expects to see inflows into an account, but there will also be cash withdrawals to bear in mind. According to Mrs. Varneckienė, such situations can complicate the conditions for granting a loan.

„How do you assess where a company's owner has been using their money? Similarly, there are situations where a client's debts are very high. For a loan to be granted, the customer's cash transaction history must be evaluated – customers who are constantly late or in debt, or who have a record of suspicious financial transactions, send the signal that something is wrong with the company,“ says the company's Managing Director.

What is essential to know when applying for a loan?

There are other circumstances that can make it challenging to get a loan. For example, it may be more difficult to get a loan for a company that was registered only a few years ago, or one that has been out of business for a long time, or one that has recently seen a change in ownership. A change in its director(s) may also raise additional questions, for it is not yet known how they will manage the company's finances. „Only by observing a company’s history can we tell whether the decisions that were made proved to be right or not,“ said J. Varneckienė.

There continues to be cases where businesses make it harder to get themselves a loan, or slow down the loan process, by not cooperating or failing to provide requested information.

„We tend to talk to the client because communication is one of the key aspects of successful cooperation. Not returning calls or not providing required information can slow down the loan process, and may lead to money not reaching the company at a time important to it,“ said J. Varneckienė.

Easy solutions can be implemented in but a few minutes, but there are also more complex situations in which the client is asked to provide certain necessary financial information.

„Until such documents are provided, progress is impossible. The client's input and communication alone should be significant – and if the client disappears, the process stops,“ says the expert.

Flexible terms for reliable customers

If a company has a high credit rating, the cornerstones of it are a clean credit history, on-time payments, and smooth communication with the financial institution that issued any loan. Customers with such a credit rating enjoy the advantage of flexibility.

„Sometimes a client has money but not enough to cover the current month's obligation. In such cases, paying only part of a loan for a given month and paying the rest of it the following month might be possible. Of course, when it comes to flexibility, we always consider the client's credibility – if the client's payments are consistently late and they show themselves to be unwilling to communicate with us, we will not be ready to grant such flexibility,“ says the expert.

There are also situations where a client who has taken out a loan decides to repay it early. The big banks often charge an early repayment fee in such cases.

„We try to give customers maximum flexibility regarding management of their financial obligations. It’s a matter of weighing their situation against their entourage of clients; they can be billed for the entire loan at no extra cost. We take stock of our clients’ needs and encourage responsible financial management“, said J. Varneckienė.

In a self-service system, a customer can also postpone a loan repayment – for example, they might pay an instalment after four weeks instead of two. And such a postponement will not be subject to any additional fee.

„We act as a financial partner to our customers, not just as a company that will provide a loan. With this, should unforeseen circumstances occur, they need not be afraid to ask for an extra month to cover their loan – they have all the options and instruments they need in place to manage their commitments. We create flexible tools, allowing them to go with solutions and conditions convenient for them,“ said J. Varneckienė.

CapitalBox started in 2015 as a division of the Multitude Group and later grew into an independent and separate company, one successfully offering services in five markets – Finland, Sweden, Denmark, the Netherlands and Lithuania. CapitalBox's credit products range from credit lines and loans without collateral (with a shareholder or manager acting as the guarantor) to loans with real estate collateral.

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