Research provided by the Federation of Small Businesses (June 2023) demonstrated that small firms are finding it increasingly difficult to access new finance. The statistics show that only six in ten (60%) small businesses that apply for credit are successful. For Focus, this is a shocking statistic as our approval rate is considerably better than this.
I would assume that the reason for such a low approval rate, is predominantly down to automation and decisions being made purely on autoscoring. Of course in such a fast paced world, auto-decisioning does have its place, but clearly some manual intervention is required to avoid completely destroying business confidence. Additionally many companies will have made losses due to COVID, so without the correct presentation, declines are far more likely.
At Focus we work with many different funders, all bringing different skillsets and underwriting approaches to our panel. Each of our funders’ appetite are slightly different dependent on the asset, customer type etc. We use our expertise to identify the correct funder for the overall package. Keeping in mind that we need to ensure that we obtain an approval on the terms quoted, in the quickest timescale, whilst keeping the information required to a minimum.
We work with a huge range of different businesses, from new starts to blue chips, but we treat every single company with the same respect and understand just how important big purchases are for SMEs. Our individual approach ensures that we look at each company on its own merits and request relevant information accordingly. Not only does this increase chances of approval, it also saves time and enables correct presentation of a deal.
Take a look at the eligibility criteria PDF below for more information:
Download “Is my business eligible for finance?”
With an auto-decisioning system, the following will more than likely result in a decline:
- Negative balance sheet
- Drop in net-worth
- Weak business credit score
However at Focus, we pre-underwrite every deal internally to ensure that we have all the answers to the credit team’s queries. For example, often a drop in net worth can be due to higher dividends being taken out than profit for the year, and therefore we would request full accounts to demonstrate that the business is in fact profitable.
We work with our clients to really understand their business and any challenges they have faced, to obtain the necessary information to result in an approval. This can often mean understanding the wider structure of the companies involved and the relationship between them all. We may also ask for additional financials which can include bank statements, to help us get an overall picture of the company, helping us to present the deal in the best light.
Accounts filed at Companies House can be over a year old, and we therefore may ask for management information to see a more up to date picture of the business, often showing an improved position.
If on review of all financials and the type of asset, we feel the full amount may be too rich, we would discuss your options with you. These are likely to be the option of putting down a deposit or potentially the support of directors’ guarantees. We believe that knowledge is power and by laying out all your options, we enable you to make an informed and right decision for your business.
Focus’ applications return very few declines, however the declines that do come back generally are because of adverse credit on personal credit searches. It is worth bearing in mind though, that we only need personal credit searches if the business is a sole trader or partnership, or if guarantees have been requested.
Whilst auto-decisioning does have its place for certain applications, with business-critical purchases it is important that you can trust that all avenues have been explored before reaching a final decision. A computer is unable to do this, and that is where human intervention becomes imperative to obtain competitive and prompt approvals, helping SMEs to grow.