"I 'm trying to open a new business account but I am finding it difficult because I have a poor credit rating. My business requires no funding or facility and has no outstanding creditors. Any ideas who might take me on?"
Richard White, Corporate Finance Manager, Mazars says:
With new businesses, banks tend to regard the proprietor and the business as one and the same. Even in the case of limited companies, where strictly speaking, the person and the company are separate legal entities, the bank will look to how well the owner manages his own financial affairs as an indication of how well he will manage those of a business.
The answer to this question really lies in the definition of a poor credit rating, as this can mean a range of things. If your business proposition looks viable, a good bank manager will make enquiries into the cause and the extent of your poor personal credit rating and will take a view based your individual circumstances.
If you have been declared as personally bankrupt for example, you are unlikely to receive favourable responses from any bank.
The same will be true if you have defaulted on a significant personal loan or have a whole series of county court judgements (CCJ's) registered against your name from various creditors.
If on the other hand your poor credit rating arises out of a single CCJ for £100, which occurred out of some sort of innocent misunderstanding or late payment, then a bank may well take the view that it was a one off and will most likely choose to ignore it.
GUARANTEEING A FASHIONABLE FUTURE
"After leaving fashion college I won sponsorship from Top Shop to hold a catwalk show at London Fashion Week. Since the show, a number of stores from the UK and abroad have shown an interest in my designs. But I need to gain funding before I can establish myself as a professional label. I have heard that the DTI guarantees loans for start up businesses in my position. Would I be eligible and if so how should I go about applying?"
Marcus Austin, the editor of startups.co.uk says:
The Small Firms Loan Guarantee scheme (SFLG) is a Department of Trade and Industry initiative to help companies that have tried and failed to get a loan from a bank because they lack security. This could be because the business has no equipment that could be sold or the applicant does not own a house that can be used as collateral.
The loans are available for periods of between two and ten years and can be for anything up to £250,000 depending on how long the applicant has been trading for. Start ups are only allowed to borrow up to £100,000.
The loan is not free, interest is charged at 2 per cent above the Bank of England base rate on the outstanding balance. Not every type of business is eligible and not all lenders are members of the scheme. To be eligible a business has to be a sole trader, partnership, franchise, co-operative or limited company. The business must either be trading or prepared to start trading in the near future.
That is how the scheme works in theory, however in practice, a SFLG scheme agreement is not always met with open arms and a "that will do nicely smile" by your local bank manager.
Most branches are unaware of the scheme, or if they do know about it they will appear wary, and they may still turn you down. Unfortunately a SFLG agreement often sends out the wrong signal. Financial institutions perceive that businesses that have the government guaranteeing the majority of their borrowing lack the "make or break" commitment of other businesses.
For more information on the scheme visit dti.gov.uk/sflg/
All advice offered here is of a general nature and is intended for guidance only. It is offered without any legal responsibility. You should always consult your own professional advisers on the specific requirements of your business
