A cash flow lender said no, or not enough — what to do next

Cash flow lenders decline on credit score cut-offs, irregular takings, short trading history and existing debts, and they cap the amount at what your account shows. If you have equity in real estate, HomeSec assesses that instead: no credit score minimum, no turnover test, a real person on every file, and no repayments for up to six months.

Why cash flow lenders say no

A cash flow lender has no property to fall back on, so it decides almost everything from your bank account and your credit file, and much of that decision is made by a system before a person looks at it. These are the reasons we hear most often from people who call us after a decline:

• A credit score below their cut-off. Most cash flow lenders run a minimum score. Below it, the file stops without anyone reading why — a paid default from four years ago and an unpaid one from last month look the same to a threshold.
• Takings that are irregular rather than weak. Seasonal trade, lumpy progress payments, a month lost to weather or a client who paid late. The system reads an uneven account as risk, whatever the reason.
• Not trading long enough. Many want six to twelve months of trading and a minimum monthly turnover before they will look at you. A new business fails that on arithmetic, not on merit.
• Other cash flow loans already on the account. Daily or weekly debits from an existing lender reduce what the next lender thinks you can repay, and some will not sit behind another at all.
• Dishonours, overdrawn days or a low balance. A handful of days below zero or a bounced debit reads as distress on a bank feed, even if it was a timing problem.
• An ATO debt, a judgment or a default. Each is a common reason for a system to decline. For us, an ATO debt is often the reason for the loan.

Notice that none of those says the business is bad. They say the business does not fit a template built for steady takings and clean files.

"Approved — but for less than you need"

The other half of the calls. A cash flow lender sizes the loan from what goes through the account, so a quiet few months, a seasonal business or a big job that has not paid yet all push the number down. You needed $300,000 to take the contract; you were offered $80,000. No amount of explaining changes the figure, because the figure comes from the formula.

A secured loan works the other way round. The amount is set by the equity in real estate — up to 80% of a residential property's value or 70% of a commercial one, less what is owing, from $20,000 to $5,000,000. If the property supports the amount you need, that is the amount we look at.

What HomeSec looks at instead

• Equity in real estate. Residential, commercial, industrial or land — the company's, yours, or another owner's who agrees to offer it.
• A business purpose. Wholly or predominantly for business, which means at least 51%.
• A realistic way out. A sale, a refinance, or money that is coming. This carries the most weight.

No bank statements, no turnover test, no minimum trading history, no credit score minimum. Defaults, judgments and ATO debts are usually okay with us — more on bad credit business loans.

And then six months to get back on your feet

A cash flow loan starts taking money back almost straight away. A HomeSec loan can come with no repayments for up to the first six months, so the money does the job you borrowed it for. It is usually repaid by refinancing to a bank once the business has steadied, or from a sale or money that is coming. A loan secured on property is also generally priced well below an unsecured cash flow loan — how cash flow loans compare.

What to do in the next 48 hours

1. Stop applying. Each new application can make the next one harder.
2. Get your credit reports. Free from Equifax and Experian. Look for anything wrong, out of date or not yours.
3. Write down the property details — address, rough value, what is owing on it and to whom.
4. Know your number and your way out. How much, what for, and how it gets repaid.
5. Call a Lending Manager on 1300 93 83 87 and get an indicative answer on the call.

Reviewed by Paul Stone, Joint Chief Executive