If you run a business, it’s likely you’ve considered seeking a loan to boost your business and for expansion. However, getting your loan approved can be a challenging and frustrating affair. Any shrewd business person must be well informed about the specific factors that lenders look for to either approve or deny a loan. Armed with such information, you are in a better position to set yourself up appropriately to ensure your loan is approved.
In this article, we’ve compiled a list of some of the reasons why loans are rejected that you should be aware of before applying for one.
Your Business’s Credit Score
One of the most fundamental indicators that lenders base their decisions on is your business credit score. In other words, these are indicators that determine the health of your business and its ability to pay the loan back.
Your business credit score basically informs the lenders about the profit that you make, what debts you owe, and generally how well you carry out your business. If, for instance, you make a very small profit and you owe substantial amounts of money to suppliers, this might not auger well for your business.
Since a traditional non-collateral business loan for UK companies is not backed by any security, lenders have to be absolutely convinced that your business has the capacity to repay the loan. Therefore, take measures to ensure your business credit score is high. Managing your business efficiently, ensuring you keep your debts to the minimum while maximising on profits, paying your bills and taxes on time, and ensuring that you comply with the law are some of the ways to improve your credit score.
Also, you should consult a financial consultant to advise you if you feel that your business is not doing well and increase your cash flow before seeking a business loan.
Lenders are a jittery lot when dealing with new businesses. They rely on previous experiences to determine whether your business has the potential to repay a loan.
Startups are full of risks since the business model might not have been tested. Failure is high in startups due to the risks of poor management or lack of market for a product. Based on the high risk associated with startups, most lenders have a minimum duration requirement for loan approval.
For instance, they may require that you must have been in business for one or two years before they can consider you for a loan. It is important to be clear about this requirement, if you are a young business, before applying for that loan.
If your business has previously taken out a loan it didn’t pay back in time or according to schedule, you may have a problem getting your loan approved. If it is a sole proprietorship, then your personal credit history as the owner of the business will be scrutinised by prospective lenders too. Fortunately, there are steps that you can start taking today to remedy your bad credit history.
In business, growth is dependent on your ability to take loans for expansion. Make sure that you repay any loans you take promptly to make it easier to get more loans in future.
Ensure that you run your business in a professional way; have all your books kept properly, pay your taxes, and ensure that you are making profit. Professionalism works in your favour when you are seeking a loan.
Finally, be informed about the lending terms and requirements of the financial institution you seek financing from.
A week before the referendum vote in June, then-chancellor George Osborne claimed he would have to raise taxes and cut spending in a special budget to plug a £30 billion hole in the exchequer if the public voted to leave the European Union. Among the taxes he said he would have to increase, the then-chancellor estimated a 5% rise in inheritance tax.
His comments, though seen by many as an attempt to sway undecided voters, certainly suggested grave ramifications in the once-unlikely event that the country voted to leave the European Union. Once Brexit was voted in, the panicked and, occasionally, apocalyptic predictions began about what this divorce would mean for a whole host of national issues, including taxes.
It’s worth noting that George Osborne’s claim of a 5% tax hike seems unlikely to have been instated. Paul Johnson, director of the IFS, told Huffington Post that Osborne’s Brexit budget “was clearly not going to happen and clearly helped undermine some of what was being said.” In fact, others say Brexit might bring about a reduction in the amount we pay in inheritance tax.
Despite Osborne’s remarks, his replacement Philip Hammond has announced that no such budget will be implemented, so for the time being, the stance of inheritance tax remains the same as it was prior to Brexit. However, although no changes will be imminent, the decision to leave the EU could affect inheritance in other ways.
Despite these differing opinions, the only thing that seems certain when it comes to Brexit is uncertainty itself, and its effect on inheritance tax is no different. However, there are one or two things we can clear up right now.
A potential fall in property prices may have a knock-on effect
A precarious economy will impact the value of property and other assets, which includes what you receive in inheritance. What can be done about this? Firstly you should seek professional help when drafting a will, or evaluating probate.
Probate is the valuation of someone’s estate. It involves finding out about all their assets and debts, valuing their estate and passing it on. As house prices have risen consistently over the last few years, the need for probate valuation in the face of a precarious economical situation is particularly high.
Clearance Solutions, London-based experts in probate valuation, have noticed an increase in custom as a result of this increase in house prices, noting that “many estates now fall over the inheritance tax threshold – even if the value of the contents is relatively modest.”
If Brexit does end up causing a fall in property prices, now may be a good time to consider estate planning. But what happens if your property is worth substantially less than the inheritance tax you paid on it? With regard to property value, HMRC guidance states that “if land or buildings are sold within 4 years from the date of death for less than the value on which inheritance tax was paid, you may be able to claim relief for loss on sale of land”.
It’s been mentioned over and over but the fall in the value of the pound has great implications on the value of property and the number of people buying and selling. The Treasury had forecast that Brexit would prompt a fall in house prices of up to 18% whilst it has been predicted that the average UK house will be worth £2,300 less in 2018 as a direct result of Brexit.
Due to the uncertainty that remains following our decision to leave the EU, this fall is likely to continue, meaning that it is a risky time to enter the housing market, either as a buyer or seller.
Wills for property in the EU are still valid
The good news is that the inheritance law position for British residents with assets in the EU will remain valid after Brexit. However there are factors to consider: Thought will need to be given to the ability of UK citizens to own property in the EU and how that property is used, whether as a holiday home or a permanent home.
One of the major concerns of people who own assets in the EU is whether their wills remain valid once we have left the EU. This is one of the few areas where there is a clear answer: yes.
According to Sophie Hearle at Ashtons Legal, there is no immediate need to panic. She states that “you can rest assured therefore that if your Will was validly drafted and executed pre-Brexit it will remain valid post-Brexit, so long as your circumstances have not changed since the drafting of the Will.”
Could inheritance tax be scrapped altogether in Brexit Britain?
According to a study by Institute of Economic Affairs, “The economic evidence is clear – spending is far too high and the tax system is far too complicated.” They suggest that for the UK to thrive post-Brexit, a number of taxes, including inheritance tax, needs to be completely abolished.
However, as the government continues to wrangle its lengthy negotiations with the EU, a change to inheritance tax seems unlikely to happen anytime soon.
We’re constantly inundated with horror stories about the millennial students (and their parents) who’re struggling to handle the rising tuition fees and living costs of attending university.
Most recently, The Independent warned us that even after 30 years of keeping up with repayments, average graduates in the UK will still have around £60,000 of debt left to pay.
But here’s the important thing to remember – by forking out to earn a degree, you’re also investing in your future.
Although it’s not a sure-fire route to career success, having an extra qualification to boost your CV definitely won’t hurt when it comes to getting a higher paying job.
To put your mind at rest, we’re sharing a few top tips for attending university without accumulating a ton of student debt (it’s not as impossible as it sounds). Take a look.
#1: Save up money first
You don’t want to have to fund years of extortionate tuition fees entirely through student loans – that’s how you end up graduating with more debt than you can pay back.
Before you dive straight into a course, take a breather to think about your finances. University isn’t going anywhere. Although you’re eager to get started, waiting one or two years and using that time to save some money will take a lot of the pressure off as a student.
With distance learning becoming a credible and respected form of further education, you don’t have to attend expensive, traditional brick-and-mortar institutions anymore.
Through quality online universities, like Anglia Ruskin, you can earn a degree in business studies online in the comfort of your own home. The tuition fees tend to be cheaper and you can work a fulltime job alongside studying, so it’s a win-win situation.
#3: Stick to a budget
Once tuition fees are taken care of, you’ll still have living expenses to cover over the next few years of being a student. Come up with a budget to help you save and manage your money, and be realistic about it.
As well as covering all the basics like rent, food and bills, include an allowance for your social life. Nights out with your pals and the occasional shopping trip are inevitable expenses, and there’s no point pretending otherwise.
#4: Work as you go
So that your bank account isn’t constantly being emptied, get a part-time evening or weekend job you can work around your university schedule.
Zero-hour contracts are good as they allow you to turn down shifts when your deadlines or exams hit, but there are plenty of other more unique ways to earn a few extra pennies. You could take part in a clinical trial or become a life model, the options are endless if you’re willing to think outside the box.
Have you got any other top tips for students hoping to leave university debt-free? Leave a comment and let us know.
Credit cards are commonly used by people right across the UK as a way to fund their purchases. In October 2016 alone, £15.9 billion was spent making 288 million purchases via credit card.
When used correctly, credit cards can be a highly valuable and convenient way to make big ticket purchases that can be paid off at a later date. Used incorrectly, they can cause you to accumulate debt by encouraging you to make purchases that are unnecessary. The UK, as a whole, owes more than £66 billion on credit cards.
But how do you know which credit card will be best for your needs? Before applying for a new card, it’s important to know which type of credit card offer to look out for and which offer will best suit your spending, repayment and usage habits. Here’s a checklist of the things to look out for:
Credit limit: First and foremost, how much are you able to spend? Lenders will judge your application and set you a ‘credit limit’ – which is the maximum amount you can ‘put on the plastic’. Stick within this to avoid charges.
APR: Every credit card will come with an APR. This stands for ‘annual percentage rate’ and aims to express the amount you’ll have to pay in both interest and fees or charges. For this reason, the APR will probably be higher than the interest rate you are quoted. The best way to use this figure is to compare it to other cards and offers. On a basic level, the higher the percentage, the more you’ll pay back. It’s also worth noting that many providers might quote their representative APR. This is the figure offered to most (at least 51 per cent) of successful applicants but the actual amount you are given could be much higher, depending on your credit history.
Fees and charges: As stated above, the true cost of a credit card includes any fees or charges that you might have to pay. You need to look at what it will cost if, for example, your repayments are late and be aware of this before you begin.
Interest free period: Often lenders will provide an introductory offer to tempt you to take out their card and this could take the form of an ‘interest free’ period. During this period, you won’t pay anything extra on the purchases you make, meaning that this can be a low cost way of borrowing in the short term. Some people choose to treat this period as a time limit in which to pay off the balance of their card before they pay interest.
Balance transfer: Another introductory offer offered by lenders is a ‘free balance transfer’. A balance transfer is the movement of debt from one credit card to another. Sometimes you can pay interest and a fee on a balance transfer, so it’s worth noting what’s meant by ‘free’ in such an offer – you might still be charged a fee. Outside of such offers you will pay these costs so this is one of the ‘fees and charges’ to note as mentioned above.
Benefits: Some cards come with added extras. These can range from travel insurance to store loyalty points or cashback. These benefits might be the bonus that tips you in favour of one card over another but it’s important to make sure you are fully aware of what they are and how they work before you sign up.
When it comes to credit cards, you need to know how much you can spend, how much it will cost, any introductory offers you can benefit from and any added extras that are thrown in. The above checklist will ensure you read up on all of these before applying.
Editor’s note: This is The Money Principle interview with Adam French, founder and CEO of Scalable Capital. Scalable Capital is an online wealth manager and has been in the news lately as the only European start-up included by CNBC in the list of the top 25 in the world. You’ll learn what this online wealth manager is, what it does and how it is different from other online wealth managers.
Maria: Hello, Adam, and let me say first how pleased I am to have you on The Money Principle.
Adam: Thank you very much for having me, Maria.
Maria: My pleasure. Adam, you are the CEO of Scalable Capital. Could you please tell my readers what is Scalable Capital and what does it do?
Adam: Yes sure. Scalable capital is well… we call ourselves a digital wealth manager. What we essentially do is, we provide investment management but digitally: online and through our mobile apps.
We do this for UK investors but also for European investors; we have a regulated entity in Germany. We are one of the few players in the market that operate cross-border and we currently have UK clients and we also have German clients.
What we’re looking to do is to build long-term globally diversified portfolios for our clients so that they can really build their wealth for the future. That is in essence what we are trying to do.
Maria: Adam, I’d like to ask you what is the unique value that scalable capital offers to investors?
Adam: What we are trying to do is to build a technology platform that not only makes the investment journey more convenient and more accessible; you know, having smooth customer journey and having low entry point, we are using technology to improve the investment methodology itself.
Maria: One of the things I’m trying to do on The Money Principle is to encourage more people to invest and particularly women. There is a problem with women and investing; as I put it when we invest we rock but unfortunately very few women invest. How easy, would you say, it is for a beginner to open an account on Scalable Capital?
Adam: I totally believe in what you’re trying to do the because if you look at the data there is a big problem in trying to get women to invest and we will hopefully form a part of the solution to this matter.
Yes, it is easy to open an account on Scalable Capital.
We have a minimum investment of £10,000 which is a hurdle that you will have to reach. We need this money because of the way in which our algorithm for calculating risk works; we need £10,000 for this to work robustly. But the onboarding is very simple. (Note: ‘onboarding’ translates as ‘opening an account’)
Look, investing is complicated and modelling it is complicated as well. But at the end of the day we are doing everything for you. This is very similar to buying a car. When you buy a car, you don’t understand fully how it works but you trust that it will; and if something goes wrong with the car you go and see a mechanic to get it fixed.
People need to think the same way about their finances. The markets are very complicated so they have to outsource investing to someone who is doing something very smart in terms of modelling the markets.
Opening an account on Scalable Capital is very straightforward. At the beginning, there is a questionnaire that guides you to decide on the risk categories that are most appropriate for you. Our clients can get on board within 15 minutes. We provide a lot of information on the way to help people decide whether this is something for them.
Obviously, there’s the website that uses building blocks that start simple but then get into the detail if people are interested in the detail.
We also host regular webinars where people can ask anything and during which I try to present a bit about the company and also a bit about our methodology. We host investment seminars and if you go to the website there is a banner at the top which you can use to get on one of those.
You can also come and meet the team in person. You see, computers are used to do the things that humans are not very good at; mainly number-crunching and removing emotion. We also have a team of 45 people who provide client services, monitor methodology etc. There are real people here and I believe that it should be made clear that it is a digital proposition but this doesn’t mean that there are no people behind it.
Maria: Adam, I may as well tell you that I’m a great admirer of Nutmeg. I have been investing with them since the moment they started. Could you tell my readers what are the main differences between Scalable Capital and Nutmeg?
Adam: I have a lot of respect for Nutmeg and I know the team there. We are different in one main aspect, that we have already covered a little bit, which is the way in which we invest money.
We take risks targeted approach. By focusing on risk, and particularly downside risk, by focusing on the amount you could lose in a certain year and then dynamically changing your allocation to make sure that the risk remains constant we are trying to keep you invested for as long as possible so you can sleep better at night.
The idea of using risk targeted approach, as compared to fixed allocation portfolio or even a human who is making buying and selling decisions, is what really sets us apart from everybody.
When it comes to Nutmeg we’re both low cost, we are both convenient, we both have apps; you know, we are both trying to do good things. I think it is the investment methodology that really differentiates us from each other.
Maria: Adam, I may as well tell you that I’ve opened an account with Scalable Capital and my £10,000 is moving in as we speak. I intend to have a little race and pitch you against Nutmeg. Who would you put your money on: Scalable Capital or Nutmeg?
Adam: This is a loaded question, I think. Still it is an interesting one; I mean nobody is doing this right now. As I said before nobody is looking under the hood. A lot of people compare services, you know, what does it look like, what does it feel like but no one is really looking at what they’re doing. What you are proposing is one way to do that.
I would actually add third instrument into the race: I will do something like a FTSE 100 tracker and compare the three services. Where, I think, you’ll see the difference is…
You see, it is very hard to compare performance over short periods of time because it can take years for the benefits of a particular investment strategy to show themselves against another strategy.
For example, in an upmarket when you invested hundred percent in equities you will do very, very well. But in a downmarket it will obviously do terribly. This is when the risk control strategy comes into its own because in a downmarket you have more protection and it keeps you in the market for longer.
To compare the performance of different investment instruments you will have to go through a full investment cycle.
What is easier for me than trying to predict what will happen in the future, which is difficult for me to predict with certainty, is to have a look at the data. So, using the data that we have, running all the simulations that we have, I am a big fan of the risk targeted approach. Because one it shows versus passive and active investment management strategies that it can outperform them and also from emotional point of view it keeps you, as the end investor, invested for longer.
I like to back the data so that is where my position will be.
Maria: Okay. So, you’re betting on Scalable Capital and I’ll let you know what the result of the race is in about a year.
Adam: Perfect. Sounds like a great idea.
Maria: My final question is: if you were to give one piece of advice to beginner investors what would it be?
Adam: I think it will be start early. You know, the power of compounding is one of the most powerful financial concepts in the world. Getting interest, dividends and income streams from investments and letting it compound really helps.
The flipside of this is obviously if you are in debt which is compounding against you because you have to pay interest on it.
My biggest advice would be: if you have debt pay it off. If you have the opportunity to start saving, start now.
Because, at the end of the day, and this is what people forget, investing is like buying your future self a present. You are not buying something now but in the future, you can buy something nicer. Hopefully it is not buying something nicer, it is getting a great retirement and a great life.
Start early, I think, would be my key advice.
Maria: Adam, thank you so much for coming on The Money Principle.
In the run up to the EU referendum, international property consultants Gerald Eve published a report warning of the potentially damaging impact of Brexit on the investment market. Commercial property investors were wary, treating both the economic and political environment with ‘a substantial dose of caution’. As was the case with all other asset classes, 2016’s first quarterly returns showed a notable dip in the property investment market.
Interest in commercial property from abroad took an estimated 40% nosedive when Britain returned a ‘leave’ vote in the EU referendum. The temporary fall was shown in UK-based property investment searches, as off-shore businesses were reported to feel “less confident about expanding into the UK.”
Over half a year on, as shadow of Article 50 takes shape, are we closer to understanding how Britain’s departure from the EU will affect international property investment?
What does Brexit mean for the international property investment market?
For British holiday-home owners, it was predicted that the likelihood of securing a mortgage abroad would be significantly slimmer once Britain left in the EU, and the rates of borrowing much higher.
Low cost housing and low mortgage rates across the continent have long tempted British buyers. Indeed, international mortgage brokers have typically been more favourable to first-time buyers than brokers in the UK. However, soon British citizens will no longer be residents of the EU, and banks will treat these home buyers with less favour.
Similarly, the minimum deposit required to qualify for a mortgage in France rockets from 20% to as much as 50% for non-EU citizens. That’s a real problem considering the reduced spending power of the pound abroad. Given that British banks have further clamped down on mortgage lending to ex-pats, the market for Brits looking to invest in property overseas could become significantly more hostile.
It is this continued concern over the fate of the British economy that has thrown potential international property investments into disarray. Buyers are advised to secure the exchange rate before entering a transaction to “ensure an unexpected movement doesn’t derail the deal or your ability to finance the property on an ongoing basis.”
How does this affect international investment in UK property?
In January 2016, findings from a poll of property experts showed that nearly two thirds of respondents believed that a British withdrawal from the EU would have a negative impact on investment in UK property. For those in the industry, the internationally felt uncertainty over the new arrangements is the biggest concern.
With the period of uncertainty ahead, international buyers are more likely to give the UK and London markets a wide berth. Employees of foreign banks in the City of London are among those reported to be pulling out of deals after the Brexit vote as the future of foreign workers in the UK remains to be seen.
Despite the fear and apparent short fallings, there have in fact been reports of an increased uptake in London property by overseas investors. Evidence of deals exchanged with international investors, continued interest in property from high net worth individuals, and purchases of prime City office buildings by overseas buyers highlight that London remains a key market for foreign capital.
This was credited initially to the tumbling value of the pound, making for a favourable exchange rate. In fact, with property values as much as 20% cheaper in US dollar terms, post-Brexit London was reported to be more attractive than ever to overseas property investors.
Following the exit vote, international property website ProperstarPro recorded a 50% spike in searches for property in London from Latin American and Middle Eastern investors, while Chinese investors out stripped the lot. “There is about £4.5bn of live equity targeting London from Hong Kong investors… It’s the most activity we see from any international buyers,” Chris Brett, head of international capital at CBRE, told the Financial Times.
Elsewhere, Britain’s exit from the EU has opened up opportunities for other international property investors, cut off in 1975 owing to the introduction of EU tariffs and trade barriers. “Business people from NZ, Australia and India are looking at the great opportunity to business on a level playing field,” says David Adams, managing director of John Taylor luxury real estate. Leaving the EU “makes London a great place to invest again,” he concludes.
All this amounts to strong international investment following the EU referendum. The third quarter of 2016 saw international investors buy £4.9 billion worth of UK commercial property, the strongest level of investment recorded to date. This continued influx of international buyers underlines the fact that investment in UK property remains on a sound footing.
I believe it’s wrong to live with the worry about the next debt payment, about losing your house, your job or whether you’d have dignity in old age. So I’ve dedicated myself to teaching people in financial trouble how to build sustainable wealth.