When a lender considers a commercial finance application, they're trying to answer one central question: can this business reliably make the repayments? The way they answer that question has changed significantly in recent years — but the fundamentals remain consistent.
1. Debt Service Coverage Ratio (DSCR)
The DSCR is the single most important metric in business loan underwriting. It measures the ratio of available cash flow to the proposed debt repayment:
Most lenders require a DSCR of at least 1.25x — meaning your business generates 25% more cash than needed to service the debt. A ratio below 1.0x means the business cannot cover repayments from trading alone.
2. Trading history and revenue trend
Lenders want to see consistent — or ideally growing — revenue over at least 2 years of trading. They'll look at the direction of travel: a business with declining revenue will face more scrutiny even if current profitability looks adequate.
For newer businesses (under 2 years), lenders rely more heavily on projections — but these must be realistic and well-supported by evidence.
3. Credit profile — business and director
Both the business credit file and the personal credit file of directors will be checked. Key red flags for lenders include: CCJs, defaults, missed payments, IVAs, and adverse County Court Judgements in the last 3–6 years.
Importantly, adverse credit doesn't automatically mean decline — specialist lenders take a more nuanced view, particularly if the credit issues are old and the business has traded well since.
4. Security and personal guarantees
Secured loans require an asset — typically property — to be charged as security. The loan-to-value ratio matters: most lenders cap secured lending at 65–75% of the asset value.
Unsecured loans remove this requirement but often require a personal guarantee from the director(s) — meaning personal assets could be at risk if the business defaults.
5. Purpose and exit strategy
Lenders want to understand what the money is for and how the loan will be repaid. A well-articulated purpose — growth investment, specific equipment, acquisition — gives lenders confidence. Vague requests for "working capital" without explanation are viewed less favourably.
What documents will you need?
Our brokers can review your position before approaching lenders — identifying any issues and presenting your application in the strongest possible way. It makes a genuine difference to outcomes.
Speak to an Expert →