# Refused a business loan



## Maryoblige (4 May 2016)

We are a small business and have just applied for a loan from permanent Tsb. We have given them 3 yrs accounts etc (we are in business 10 yrs). We have also given them a guarantee of an investment property we own outright that is 35% more than the loan we have requested. 

They have come back to us in the same day refusing the loan on account of the guarantee - they don't 'mix' loan/ guarantees? We are at odds as to what this actually means. 

We provided a solid business plan and were under the impression that this bank was giving loans to small businesses. Anyone any idea why they have refused us? Thanks in advance Mary


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## Brendan Burgess (4 May 2016)

I have no idea, but lenders want to see repayment capacity.  Security alone is not enough.

Why don't you sell the investment property?  Then you won't need to borrow.

Brendan


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## Joe_90 (4 May 2016)

How much have you applied for?

Is it a sole trader or limited company.  What do you mean offer a guarantee?  Offered it as security or provided a guarantee?

If a sole trader you effectively guarantee it anyway.


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## Maryoblige (4 May 2016)

Hi there (and thanks for your replies).
We are a limited company. The loan was for €200k, which we comprehensively showed repayment capacity in our business plan, or so we thought.

As for selling the investment property, yes that is an option but will take time to complete and in the meantime, some of our opportunity to expand will be lost. Why will the bank not accept our investment property as security or are they just using this as an excuse perhaps? I've asked them to clarify in writing.

Ps we offered the investment property as security. Is this not the same as a guarantee?


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## Palerider (4 May 2016)

The key things banks want to see are.

Repayment capacity, your audited accounts will demonstrate this or not.

Security, typically lending 70% loan to value, in this case if your investment property has no borrowings on it and worth 270k then they could lend up to 189k

Gearing, how much are you putting into the deal, you want say 200k, they like to see at least 30% put in by yourself from an
unborrowed source and the ability to pay legals etc if applicable.

Performance , how you have run your bank accounts, within facilities, no unpaid fees or returned items and good reserves.

If this bank won't lend it and you can tick the above boxes you should get the loan elsewhere, if it is a limited company borrowing then you as directors will also be asked to provide personal guarantees possibly supported by a charge on the deeds of the investment property, all standard.


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## Monbretia (4 May 2016)

Banks in general are not that impressed with security or guarantees anymore, they are very much a secondary part of lending.  Repayment capacity is number one, they must have had doubts about that.


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## Brendan Burgess (4 May 2016)

Maryoblige said:


> Ps we offered the investment property as security. Is this not the same as a guarantee?



I probably would not lend to someone who thought that.  It shows a fundamental lack of understanding.  If the loan were to get into difficulty, you could probably drag them through the courts for years saying "I never understood..." 

Did you apply on your own, or did you use an accountant or broker?  Get someone else to help you with your application. 

But, in the meantime, put the investment property on the market.  A bank may well give you a loan if you have an offer or a written contract with an undertaking from your solicitor to pay the proceeds off the loan. 

Why are you applying to ptsb? Why not apply to the lender which has your current account and which understands your business?


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## Maryoblige (4 May 2016)

Thanks for your replies. We are new to taking out business loans as we've been fortunate enough to build our business from scratch with very little investment, most of which came from savings.

We use AIB for business banking but have interests in PTSB also so decided to test the water with them first. 

We did not get any help with the business plan but in light of what you say, we may now look at using a broker. We hadn't thought about that. 

In all honesty, I thought our investment property would be an asset to be used as a security but it seems not! If we sell it, we have the money to invest in ourselves but that could take 6 months. 

Appreciate all your advice! Thanks


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## Brendan Burgess (4 May 2016)

Another option would be to ask Dilosk or Pepper for a mortgage based on your investment property.

You get the cash and you lend it to your business. 

But talk to your accountant first.

Some successful business people don't really understand finance.  You can get away with this if the business is very small, but as it grows a poor understanding of finance can sink your business. 

Brendan


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## Maryoblige (4 May 2016)

Brendan Burgess said:


> Another option would be to ask Dilosk or Pepper for a mortgage based on your investment property.
> 
> You get the cash and you lend it to your business.
> 
> ...



Thanks Brendan
I had thought about Pepper. I presume that the lending rate won't be as favourable but that's to be expected when you're as naive as us! 

I'm embarrassed to say that, as a business owner I should be more fluent in business finance than I am. It's fair to say that it's my weakest point, primarily because we've never had to borrow. I will endeavour to educate myself in this regard! 

Thanks again, you've been very helpful, Mary


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## Andy836 (4 May 2016)

Mary,
Couple of questions/points:
- Do you have a specific purpose for the loan?
- Will the loan add value/revenue/profits to your business? 
- Have you thought about other financing options - e.g. leasing finance for a machine or van, buying stock on credit (increasing your payment days for supplier), factoring your receivables if material etc.
- I'd be reluctant to offer any additional collateral including personal guarantees. Never offer more than you need.
- If your offer is rejected ask what they need to get the loan across the line. Once feedback is received try and address their concerns.


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## Maryoblige (4 May 2016)

Andy836 said:


> Mary,
> Couple of questions/points:
> - Do you have a specific purpose for the loan?
> - Will the loan add value/revenue/profits to your business?
> ...



Hi Andy
Thanks for your reply. 
Yes we've looked at every which way to source credit, through leasing etc. Ultimately the guts of the money we need a loan for is for refurbishment and as we have done this before we know that these trades need to be paid upfront or within a short time period. While we have some monies available to put towards this (approx 30%), that is all we have! 

As someone who has never taken out a loan, beside a couple of mortgages (one fully paid off), I have been slightly naive as to what the banks actually require of us. I honestly thought that 3 years accounts (we could give them  10 years!), a good business plans with solid projections based on our current business / experience and a personal guarantee (investment property - we'd give them the deeds!) would be enough to secure this loan. First bank has now officially turned us down and this was a rude awakening but hey it's given us food for thought and getting advice on here has been very useful. 

I think we need to take on board self funding more of those costs, as you mention above but ultimately we will need a substantial loan to expand the way we need to.

I wish this was easier!


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## Andy836 (4 May 2016)

Maryoblige said:


> Hi Andy
> Thanks for your reply.
> Yes we've looked at every which way to source credit, through leasing etc. Ultimately the guts of the money we need a loan for is for refurbishment and as we have done this before we know that these trades need to be paid upfront or within a short time period. While we have some monies available to put towards this (approx 30%), that is all we have!
> 
> ...



Best of luck Mary.
But make sure you ask them (i) exactly why they refused you the loan, and (ii) what you need to provide in order for them to give you the loan.

A straight up "no" is not good enough. They should be able to provide a reason. If they can't you're better off with someone else.


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## Maryoblige (4 May 2016)

Will do. However I bet we get one of those 'your business plan does not fulfill the criteria we require blah blah....kind of response. I've already emailed them asking for a written explanation as to on what grounds our loan was refused. We have a meeting with AIB on Friday. 

Thanks again!


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## cremeegg (5 May 2016)

Andy836 said:


> A straight up "no" is not good enough. They should be able to provide a reason. If they can't you're better off with someone else.



A STRAIGHT UP "no" is a lot better than the response many business loan applications receive, which is the SLOW NO.


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## Brendan Burgess (5 May 2016)

Maryoblige said:


> I'm embarrassed to say that, as a business owner I should be more fluent in business finance than I am. It's fair to say that it's my weakest point, primarily because we've never had to borrow. I will endeavour to educate myself in this regard!



Hi Mary

It might be worth looking into doing a course on the topic.   Some great businesses crash because they didn't understand the finances.  I know businesses which thought they were profitable when they weren't.  Others expanded at ridiculously low margins which destroyed a good business. 

Brendan


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## 44brendan (5 May 2016)

Maryoblige said:


> Will do. However I bet we get one of those 'your business plan does not fulfill the criteria we require blah blah....kind of response. I've already emailed them asking for a written explanation as to on what grounds our loan was refused. We have a meeting with AIB on Friday.
> 
> Thanks again!


There are a lot of unknowns in your post which would make it very difficult to do any kind of independent assessment on the merits of your loan application. The purpose of your application (refurbishment) appears to be good in so far as it adds value to your overall business and ability to attract/retain customers. Yes the bank will require collateral and on the basis presented a PLG supported by a property with a reasonable LTV would appear to be good collateral. The fact that you are in business 10 years and I assume have a good profitability track record should also be a positive. Lack of financial acumen/understanding is in my view a major weakness in any business and in my own banking experience is the single biggest issue to business failure. I don't mean a formal understanding of financial issues and accounts as such but more a streetwise understanding of money in/money out which is an essential to maintaining the financial health of any business. You may well have this ability and the fact that you have successfully managed this business for 10 years during a period of high recession is a good indicator that you do have it!!!
Hopefully AIB will give you a better service than you have received from your existing bank. They should by right call you in and explain exactly where the deficiencies were in your submission but unfortunately in many cases the "banker" you submit the application to is merely an information gatherer and has no input into any credit decision.
There is an independent appeals board set up by the Government for declined business loans and it has a very good overturn rate. Get details from your bank on how an appeal can be submitted.


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## RichInSpirit (5 May 2016)

Hi Mary. There's hundreds of people and businesses that in hindsight probably wished they didn't borrow so much in the past. Myself included.
The way you've financed your business up to now is a brilliant way to go.


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## peemac (6 May 2016)

Ptsb have never come across to me as a bank that targets business. 

AIB on the other hand seem to be pro business - i got 100k last year with just a personal guarantee for a refurb and whilst we do ok, we certainly would not be considered an a rated business and don't own property. 

If you have a good relationship manager in aib, he/she would be best to talk to and advise.


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## Mrs Vimes (9 May 2016)

Hi Maryoblige

I heard an ad on the radio this morning for creditreview.ie - if you feel you have been unreasonably refused credit they will look at your case and make the bank change it's mind. I seem to remember it being set up a few years ago by government.


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## MrEarl (10 May 2016)

Hello,

While various points already made regarding the ability to repay etc. are correct, there are a couple of other things to remember here:

- PTSB are not known for their expertise or track record in business banking.

- If you beleive that you should have been granted the loan, then make a submission to the  Credit Review Office  as they will help you, along with other business owners who follow in your footsteps.


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## Mrs Vimes (11 May 2016)

I heard that ad on the radio again this morning. It only applies to NAMA banks so won't help with PTSB.

As others have said, try another bank.


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## JamesN (11 May 2016)

Have you tried linkedfinance ? Google them - I cant post url for some reason.

Irish 'crowdfunder' type site. Seems to have had a lot of success. (I have no link with them)


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## MrEarl (11 May 2016)

Mrs Vimes said:


> I heard that ad on the radio again this morning. It only applies to NAMA banks so won't help with PTSB.
> 
> As others have said, try another bank.




It seems that PTSB are due to join the list of banks, per their website... so I would submit it.  Someone has to be first in the queue 

http://www.creditreview.ie/am-i-eligible/ 



> *Your application for credit was with one of the participating banks.*
> _The banks we cover are Allied Irish Bank, Bank of Ireland and Ulster Bank, with PTSB due to come on board shortly._


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## Jim2007 (11 May 2016)

Mrs Vimes said:


> Hi Maryoblige
> 
> I heard an ad on the radio this morning for creditreview.ie - if you feel you have been unreasonably refused credit they will look at your case and make the bank change it's mind.



They cannot make a bank give credit to anyone, they even state this on their site:  "We have no statutory or regulatory powers to overturn bank lending decisions.".  To do otherwise would constitute a breach of EU market rules.


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## MrEarl (12 May 2016)

Jim2007 said:


> They cannot make a bank give credit to anyone, they even state this on their site:  "We have no statutory or regulatory powers to overturn bank lending decisions.".  To do otherwise would constitute a breach of EU market rules.



No, but they have not been set up for no reason, either (I think the way it's put is they get the bank to look at the application again) 

See this from the Credit Review site:



> We have no statutory or regulatory powers to overturn bank lending decisions. However, *if it is our view that the lending could have been made within acceptable risk boundaries, the bank will be required to comply with this recommendation or explain to the Credit Review Office why it will not do so. To date, all banks have respected and complied with our recommendations.*
> 
> http://www.creditreview.ie/about-us/


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## Seagull (12 May 2016)

I suspect it may be because the property you're offering as security is a personal asset, rather than a company asset, and that is what they mean by a mix. You're looking to take a loan for the company against an asset it doesn't own.


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## thedaddyman (12 May 2016)

Have you spoken to your Local Enterprise Office (LEO)?. Depending on what the money is required for there may be grants available. There are hoops to be jumped through (it is taxpayers money they are giving away after all) but they will give grants for employment, feasibility studies and capital expense. They won't fund €200k, you may only get €20-€40k if you meet the criteria with some of it refundable but they give good advise and potentially someone to look at your business plan who isn't on a commission. €20-€40k will take some of the sting out of the loan and may make it more attractive for banks to lend the rest


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