Why Do Financiers Reject Invoice Financing for My Business?

The financial history of your business is the most important barometer when it comes to trying to apply for invoice financing. For new businesses with no credit record and selling figures, even a small business bank loan is traditionally troublesome. Even though there has been a slight upturn in small business lending in recent quarters, it is still an application that more often than not gets a negative response.

The reason is simple–it’s all risky. Wherever possible, financiers would like to see–in cold hard figures–that your business has a record of meeting its obligations; in particular, paying back the money that has been lent for the business. If this financial history does not exist, your business represents a significant risk to the bank. For many banks, your request will face an automated analysis and will be refused for failing the criteria. Efficiently, you’re going to get a’ computer says no’ response based on your business’ lack of financial history and the risk you embody.

It is important to recognize that financiers are not investors. Instead, they rely on a risk-based review of your company’s finances to date. Without some kind of financial background to assess, the financier has no way of knowing whether your venture will be profitable enough to allow your business to repay any borrowed money.

The standard of application is a key advantage that larger firms have over SMEs. More often than not, an established business will know more about potential financing options and will have an internal finance team or a finance director with the necessary knowledge and support to prepare a detailed and credible bank loan application. In many cases, start-ups or relatively small business owners will try to obtain finance on their own without the necessary experience or expertise to make a compelling case.

Nevertheless, if your invoice financing has been rejected by financiers, here are possible reasons:

Lack of Security

In many cases, the financier will seek to safeguard their money by accepting a form of security such as a personal guarantee. This is where the owner of the business assumes responsibility for the loan, in the incidentt that he or she is unable to reimburse it, by securing it against an asset such as vehicles or machinery (asset-based finance) or even his or her own property (secured lending). A business owner might even ask a family member or friend to provide their personal guarantee and act as a guarantor for a loan that, in the event of a business default on loan, would be able to pay back the bank on behalf of the business owner. A financier is much more likely to provide capital if the loan is secured.

Lack of Service Ability

The bank weighs up the claim and feels that the business was unable to pay the debt in a manner that is appropriate, i.e. is unable to make regular repayments or agree to the lender’s timeline. The business might already have an overdraft with the bank, which is maxed out and never discarded; the bank may see it as an indication that the business debt service ability is low.

Poor Preparation

Hasty or unprepared applications for invoice financing will invariably lead to a negative reaction. It is challenging for a lot of business owners to understand exactly what a financier probably wants to see and it would be better to ask a loan consultant or an accountant to help with the preparation of the application. If the application excludes critical information such as accounts, contracts related to the invoice(s) and a cash flow projection, the financier will waste little time refusing to accept the application.


Banks require time to conduct their due diligence when a business apply for invoice financing. If your business is struggling and requires a quick capital boost to support business growth, to ease cash flow problems, or to ease the threat of financial distress, it may be impossible for the bank to provide finance within a specified timeframe.

Business Finance Options

If you find your business in a scenario where reaching finance is a constant battle, and you feel like you have exhausted all possible avenues, a route may still be available. In this particular industry, a loan consultant could be the best chance to secure the required funds.

A good business loan consultant will not only assess the availability of business loans to one or two banks but will instead have full market access and knowledge of specialized Financiers–some of which you may never have heard of.

Having a widespread understanding of the marketplace guarantees that you can find the best available loan products and an independent loan consultant can talk to you through the pros and cons of varying Financiers without being subjective to one in general.


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