No facilities for 12 months if I get a business bank account - why ?

The bank just called me back to let me know its not a problem with my credit or the business plan but they are not able to tell me why it has been rejected for any form of borowing for twelve months. I was told to talk to business link about this as it might work in my favour. I am SO confused !

Hi Bendyplank!
I used to work in banking before - not specifically in commercial banking, but the credit scoring used is fairly similar in all types of banking.
First of all - you saw a person, but the machine made the decision. Before spitting out the verdict (so to speak) it would have done two things: checked your credit record to make sure you, as the director/owner of the business, have no adverse information (county court judgements, defaults on previous credit et c). It will also have checked if the business had any adverse information.
As you got an offer of an account, this part would have been 100% fine, and nothing for you to worry about.

The second thing that it would have done is calculate a credit score (this is what it is called at HSBC- your bank might call it something else). A credit score is basically all the bits of information the bankmanager put in to the computer, all weighted and added together by the system. Only things that are actually added in will make a difference. Therefore it will not have taken full account of your business plan, and I think you can rest assured on that point, that the plan is fine too - at least form the banks point of veiw.

Credit scoring is a way to calculate risk. One of the MAJOR things will be risk sharing. Basically: if you commit to investing your own money and putting the money in the account, then the computer MIGHT say: OK - that's cool, he belives it will work, and is worth risking cash on, so we will too - here is an offer of an overdraft (or credit card or whatever). That's just one example, but all sorts of things are taken in to account. Generally on a new account the bank wants to keep things as low risk as possibly, and so is being very conservative indeed.

The reason he said 12 months to you is not because he will not be able to consider lending you any money until then, it is not even saying that he will ever lend you any money. The thing is unless something really changes that makes you want to re-apply for a loan (perhaps to match other investment), then it will take a very minimum of 6 months (that was the minimum for personal accounts) until the computer has gathered enough information about how the account is run (how much the turnover is, any savings built up, any unauthorised borrowing) to be able to give a new, and better informed, answer.

So unless circumstances change, you are looking at a 'no borrowing' situation for at least six months. This has however NOTHING to do with you having a bad score, or a bad record. And is really absolutely nothing to worry about at all. Unless you want to borrow cash - in which case you might have to look at matching the funds from elsewhere, or give some sort of loan guarantee (but that can be a tad scary). I think you will find in a year's time that the bank will be chucking offers your way, if you have kept the account active and in order (that's really all it takes).
Hope this helps! Anna

Anna, you never stop amazing me, that was a FANTASTIC replied!
Olga Cuesta
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You are sweet, thank you! I am glad 4+ years in banking has paid off at last, I wondered when that would happen ;) ...
I've been through the above hundreds of times, from the bank's perspective. Banks like to tell their staff not to explain the credit scoring system (and it is really too intricate to be able to give an exact answer to any one customer, especially since the staff never see the calculations, just the yes/no answer), but I always thought the customer deserved to know at least that it wasn't scary, that a no on scoring was not a 'black mark' on their record, and what could be done to improve their chances of a loan in the future.
Just a shame banks don't teach their staff to do this - if they did they would have better accounts to manage, and happy rather than distraught customers.

Just had a thought about this, and I think the reason the bank manager is saying NOT being approved for borrowing by the bank is a good thing, is that you then can be eligable for grants and loans under some charitable schemes. I know the Princes Trust won't lend money to anyone that can get bank credit for example. Business Link should have an overview of potential sources of credit, but they don't actually lend money themselves.

Its a lot to take in, but I shall go hunting for grant information. I guess that I no longer have the option of the Small Loan Guarentee Scheme now... Ah well, I'll figure soemthing out !

Thanks Anna !

Hi Bendyplank!
Or you can look upon it the other way - This scheme might be just right. You will never know until you have tried and look into things further. These loans are judged differently to the banks standard stuff. That is sort of the entire point of them.

Focus on the important things, which are: your credit record is GOOD, and you HAVE a bank account. If your business idea is sound, then you will find finance somewhere, somehow.
Anna

Thanks Anna, I really hadn't realised that the SLGS was judged differently. I wish I could find more out about it ! There seems to be very little about it. I have read the DTI's guide, but cant really find anyone with practical experience of going after one of these types of loan . I'd love to be able to read about peoples expereince with the scheme.