Can You Get a Business Loan With a CCJ?

How CCJs affect your loan eligibility

A CCJ can significantly impact your creditworthiness and make it difficult to obtain a business loan.  When you apply for a loan, lenders will check your credit record to determine your creditworthiness, which is a measure of how reliable you are at repaying debts.  If you have a CCJ, lenders may perceive you as a higher risk and may be more hesitant to lend you money.

However, having a CCJ doesn't necessarily mean that you can't get a business loan.  Some lenders may be willing to consider your application if you can demonstrate that you have the ability to repay the loan.  It is also worth advising the lender, on application, how your CCJ has arisen and the circumstances around it.  There are also alternative financing options available that may be more suitable for businesses with a CCJ.

It's important to note that not all CCJs are created equal.  Lenders may be more willing to overlook a small CCJ that has been paid off than a larger one that is still outstanding.

Additionally, the age of the CCJ can also be a factor.  The older the CCJ, the less impact it may have on your creditworthiness.

Options for obtaining a business loan with a CCJ

If you have a CCJ and need a business loan, there could be several options available to you. The first option is to approach a specialist lender that has appetite in providing loans to businesses with a CCJ.  These lenders may be more willing to consider your application and may offer more flexible terms, but the overall cost of the loan will be higher due to the increase in risk.

Another option is to apply for a secured loan for which you need to provide collateral as security such as property.  If you have equipment such as plant machinery, you may be able to use them as collateral for an asset refinance, where you are able to borrow based on the current market value of the asset.  Providing collateral reduces the risk for the lender, making it easier for them to approve your application.  There are certain lenders that will offer asset based lending in order to refinance assets and release cash to your business.

You may also consider finding a guarantor.  A guarantor is someone who agrees to repay the loan if you're unable to.  Having a guarantor can increase your chances of getting approved for a loan as they are providing a guarantee that the loan will be repaid.  Please note not all lenders will accept this scenario so it is important to do your research prior to applying.

You need to be realistic in how much you are eligible to borrow and whether the loan amount will meet your needs.  With CCJs on your credit file, it is likely that the amount you can borrow could be significantly lower than if you did not have any CCJs

Alternative financing options for businesses with a CCJ

If you're unable to obtain a business loan due to a CCJ, there are alternative financing options available.

One option is to apply for a Merchant Cash Advance.  A Merchant Cash Advance is a lump sum of cash that is provided to a business in exchange for a percentage of future sales, that is tied to the card machine the business usues to take payments from customers.  This type of financing can be easier to obtain than a traditional business loan and may be more suitable for businesses with a CCJ.

Consider using asset finance or refinancing existing assets, as this can make it easier to obtain finance with a CCJ.  With asset finance you are borrowing to purchase tangible assets such as machinery, equipment or commercial vehicles.  As the asset is being used as security, this reduces the perceived risk to the lender.

If you already own tangible assets, these can be used to release cash based on the current market value of the asset.  Again, as the asset is being used as security the perceived risk is reduced as lenders will use the asset to recoup any outstanding payments.

Another option is to use invoice financing.  Invoice financing allows businesses to receive cash advances based on their outstanding invoices. This type of financing can be useful for businesses that have slow-paying customers or need working capital to cover expenses.

Factors to consider when choosing a lender

If you're able to obtain a business loan with a CCJ, it's important to choose the right lender. Here are some factors to consider when choosing a lender:

Repayment terms: Look for a lender that offers flexible repayment terms.  This can include longer repayment periods or the ability to make early repayments without penalty.

Preferred market: Different lenders will specialise in different types of clients and loan types. Being able to identify the right lender for your status and borrowing needs can make all the difference when it comes to your chances of being approved.

Reputation: Look for a lender with a good reputation.  Check online reviews and ask for references from other business owners.

Customer service: Look for a lender that has good customer service. You want to be able to contact your lender easily if you have any questions or concerns.

How to use a business loan to improve your credit score

If you're able to obtain a business loan or alternative forms of credit with a CCJ, you can use the agreement to improve your credit score. Here are some tips:

Make your repayments on time: Making your repayments on time is the most important factor in improving your credit score.  Late or missed payments can have a negative impact on your credit score.

By keeping up with your repayments you are demonstrating that you are a responsible lender which will have a positive impact on your credit rating.

Pay off your CCJ: If you have CCJs that are still outstanding then consider using some of the loan funds to pay it off.  This can improve your creditworthiness and make it easier to obtain financing in the future.

Monitor your credit score: Keep track of your credit score regularly to ensure that it's improving.  You can use free online tools to monitor your credit score and receive alerts if there are any changes.

It is important to remember that different lenders use different credit reporting agencies and that your score can and will vary between agencies. So, it’s a good idea to check with different agencies rather than stick with one.  Currently the main 2 are Experian and Equifax.

Use credit responsibly: Use your business loan responsibly and don't take on more debt than you can afford to repay.  Using credit responsibly can help you build a positive credit history and improve your creditworthiness.

Lenders will always look at your level of debt, use of available credit and your debt-to-income ratio.  Leveraging too much debt in comparison to your income implies you are credit hungry and not managing your credit responsibly.

Obtaining a business loan with a CCJ may be challenging, but it's not impossible.  By understanding how CCJs affect your creditworthiness and exploring alternative financing options, you can increase your chances of securing financing.

When choosing a lender, consider factors such terms, borrowing amounts and whether you fit the lenders eligibility profiles.

If you are struggling to find the right lender for your needs, it is worth considering using a finance broker to help you find the right lender and improve your chances of acceptance.