Whether you’ve struck a new opportunity or wish to rollout a growth plan for your business, you may need more finance to make it happen. If this is the case, then you’re probably looking into the idea of a second business loan. Will you be able to? And is there any risk involved with doing so?
Here, we shed light on whether you can apply for a second business loan – with an important word about your credit history.
If you’ve already paid off a loan
If you’ve paid off an existing loan, you are free to apply for a new loan. It is your choice to apply with the same lender or a different one.
Irrespective of who you apply with, however, the application process begins again. You’ll be asked to provide the same information as before. A history of timely repayments will give you the best possible chance of being approved for a second loan.
If you’ve already secured funding
You can normally apply for a second business loan with your existing lender, but your ability to do so depends on their policy and your rapport with them.
Some lenders offer the chance to apply for a second loan – others do not. If they do, three to six months of repayments on an existing loan will usually suffice as a way to show your commitment to repayment. However, it’s important to remember that a second loan brings forth increased risk to the lender. Sometimes that risk is deemed too high.
If you’ve been turned down for funding
If you’ve recently been turned down for funding, you shouldn’t apply for a second business loan until you understand why your application was rejected the first time around.
The reasons why will determine whether a second application is worthwhile. If you can sort out your application and address the concerns highlighted by the lender, then you’re in a good position to reapply for the loan. Alternatively, you can apply for a business loans with a different lender with less stringent approval criteria.
An important word about your credit history
Lastly, an important word about your credit history.
When applying for a business loan, the lender will carry out a credit search on the applicant to review their credit history and credit score. With a loan, in 99 per cent of cases that credit check is what’s called a ‘hard check’.
A hard check is recorded on your credit report, and too many can adversely affect your credit score. This is the downside to applying for second loans. If you apply for too many in a short space of time, this appears erratic. Some lenders may interpret that as you or your business being in financial trouble. Lenders may steer clear from you for that reason alone.
So, our advice is to be restrained when applying for a second loan. You should seek financial advice if you are struggling with your finances, and you should consider other means of funding if you’ve been turned down by numerous lenders.