Why would a business repeatedly fail credit checks?
Discussion
Hi all, I just had a good friend call me and ask about this, but I don’t know much about finance/credit checks so I thought I would ask PH.
My friend is a builder. He employs 5 people and has a few work vehicles, a business premises with storage etc. He has been incorporated as a Ltd Co for 5 years now.
He has very little in the way of debt, probably £10k on a van, £10k on a tipper truck, £14k left to pay on a JCB etc.
He also took the £50k bounce back a couple of months ago. He doesn’t need it but thought it was cheap money and would come in handy to maybe buy another excavator or something.
Business premises are rented.
Turnover is anywhere around £300-400k or more per year.
Like many Ltd Co owners, he makes sure he doesn’t make much profit each year. Usually around £10-30k or so.
He has credit accounts with numerous suppliers such as Travis Perkins and these are always paid when due.
All finance arrangements on his vans and JCB etc are all paid on time and he has never defaulted or late paid anything.
But, recently, he has had a number of sub-contractors tell him they have credit checked him and then ask for payment up front for work, saying he has failed a credit check. This was for sub-contract work valued anywhere from £1800 to £20,000.
He also just got tuned down for a credit account at a new supplier.
Any ideas why this is happening and is there anything he can do to rectify this and improve his credit?
My friend is a builder. He employs 5 people and has a few work vehicles, a business premises with storage etc. He has been incorporated as a Ltd Co for 5 years now.
He has very little in the way of debt, probably £10k on a van, £10k on a tipper truck, £14k left to pay on a JCB etc.
He also took the £50k bounce back a couple of months ago. He doesn’t need it but thought it was cheap money and would come in handy to maybe buy another excavator or something.
Business premises are rented.
Turnover is anywhere around £300-400k or more per year.
Like many Ltd Co owners, he makes sure he doesn’t make much profit each year. Usually around £10-30k or so.
He has credit accounts with numerous suppliers such as Travis Perkins and these are always paid when due.
All finance arrangements on his vans and JCB etc are all paid on time and he has never defaulted or late paid anything.
But, recently, he has had a number of sub-contractors tell him they have credit checked him and then ask for payment up front for work, saying he has failed a credit check. This was for sub-contract work valued anywhere from £1800 to £20,000.
He also just got tuned down for a credit account at a new supplier.
Any ideas why this is happening and is there anything he can do to rectify this and improve his credit?
singlecoil said:
Lord Marylebone said:
...Like many Ltd Co owners, he makes sure he doesn’t make much profit each year. Usually around £10-30k or so...
I thought the usual idea was to take a very small wage and the rest as dividends (profit IOW). sunbeam alpine said:
I remember seeing a thread last week where someone said that a bounce-back loan had harmed their company's credit rating.
Maybe that's the reason?
Is it possible that his business was fine with the £35k (and falling) loans/finance that it had, but once he took the £50k bounce back loan and added it to his total debt, this tipped him into a category where his borrowings where too large compared to his profit/turnover?Maybe that's the reason?
Lord Marylebone said:
sunbeam alpine said:
I remember seeing a thread last week where someone said that a bounce-back loan had harmed their company's credit rating.
Maybe that's the reason?
Is it possible that his business was fine with the £35k (and falling) loans/finance that it had, but once he took the £50k bounce back loan and added it to his total debt, this tipped him into a category where his borrowings where too large compared to his profit/turnover?Maybe that's the reason?
I have obtained a copy of the Credit safe report.
The business is classed as 48/100 and 'Moderate risk'.
Without pasting the whole thing, this is also present:
This company has been treated as a Micro company in terms of the score/limit that has been generated.
This company's Current Liabilities shows a moderate amount of outstanding short term obligations.
This company's Balance Sheet indicates a positive Net Assets position.
This company's Equity in Percentage ratio shows a moderate percentage of the company's Assets are funded
by Equity.
This company's Long Term Liabilities shows a high amount of outstanding long term obligations.
The business is classed as 48/100 and 'Moderate risk'.
Without pasting the whole thing, this is also present:
This company has been treated as a Micro company in terms of the score/limit that has been generated.
This company's Current Liabilities shows a moderate amount of outstanding short term obligations.
This company's Balance Sheet indicates a positive Net Assets position.
This company's Equity in Percentage ratio shows a moderate percentage of the company's Assets are funded
by Equity.
This company's Long Term Liabilities shows a high amount of outstanding long term obligations.
48/100 is pretty decent in my experience in terms of the sub £2m turnover market, my employer (high street bank) has lent to plenty of businesses with a score lower than that.
Could be simply sub-contractors mis-interpreting the word 'risk'?
Taking the bounce back loan will increase risk in the eyes of a bank or finance company as the payments still have to be made next year, and payments on a £50k loan are going to be relatively hefty for a business of this size. Credit rating won't take account of the company not using any/part of the loan.
Could be simply sub-contractors mis-interpreting the word 'risk'?
Taking the bounce back loan will increase risk in the eyes of a bank or finance company as the payments still have to be made next year, and payments on a £50k loan are going to be relatively hefty for a business of this size. Credit rating won't take account of the company not using any/part of the loan.
If the company needs the goods / services and can’t get credit, it could dip into the bbl
Presuming it goes as expected, by the time the loan needs to be repaid, it will have a good enough track record to get credit from the suppliers by then
As things are just now, I expect companies are tightening up on how much credit they dish out to customers. 48 might have been good enough in Feb, but nowhere near good enough now
Presuming it goes as expected, by the time the loan needs to be repaid, it will have a good enough track record to get credit from the suppliers by then
As things are just now, I expect companies are tightening up on how much credit they dish out to customers. 48 might have been good enough in Feb, but nowhere near good enough now
singlecoil said:
AIUI the key thing to having a good credit rating is a history of borrowing money and then paying it back. No borrowings, no credit rating.
The only borrowings he has had are for 2 or 3 vans and a JCB, all on various finance arrangements, and all being repaid without issue. One van was paid off and I think it's just 2 and the JCB now.Probably around £35k in total outstanding plus now the £50k bounce back loan.
I suppose he could pay the bounce back loan off easily as he hasn't used it (by simply paying the whole amount back plus the interest which I understand to be tiny) Surely this would then count towards borrowings being paid back?
Gassing Station | Business | Top of Page | What's New | My Stuff