Knocked back by the bank: why it is not the end if you own property
A HomeSec presenter on why a bank knock-back is not the end for a business owner who owns property, and how a loan secured on that property is assessed on different grounds from the bank's.
- Most bank declines on business loans come down to policy: serviceability, trading history, industry or loan size. They are rarely a finding that the business is unsound.
- Ask the bank which rule the application failed. The answer tells you whether another lender would see the file differently.
- A property-secured loan swaps the bank's income test for two questions: is there enough equity, and how will the loan be repaid.
- Keep the bank in the plan. A private loan can carry the business until the reason for the decline has passed, and a bank refinance then repays it.
What the presenter says
The presenter starts with the assumption most people make, that a no from the bank means it is over, and turns it round: for someone who owns property, the decline is where the options start. The rest of the Short explains why. Because the property's equity secures the loan, the presenter says, credit history, financials and trading performance stop deciding it. There are no repayments for six months, and the term can be extended. The box below this summary sets out the published terms behind each of those.
What a bank decline usually means
Banks lend to policy. A business loan application is tested for serviceability, meaning whether recent income covers the repayments with a buffer to spare; for trading history, often two full years of financials; for the industry; and for the size and type of loan. Fail any one and the answer is no, however sound the purpose. So a decline is mostly information about the bank's rules, and much less about your business. That matters, because a file that fails one lender's policy can be a perfectly good loan for a lender with different rules.
How the same file is assessed when property secures it
A lender secured on property replaces the income test with the security and the exit. It asks what the property is worth today and what is owed on it, why the business needs the money, and what will repay the loan at the end: the sale of an asset, money already owed to the business, or a refinance back to a bank. Credit history is read, though the decision does not turn on it, and the decline you have just had is not held against you. None of that needs two years of accounts, which is why the answer can come quickly. The guide on what to do after being declined for a business loan goes through what is still open, keyed to what you have.
Using the decline well
- Get the specific reason. Each of the four leads somewhere different.
- Work out what you have. Property with equity, a business purpose, and a way the loan ends.
- Get an indicative answer first. A conversation with a Lending Manager is not a credit application, and it tells you whether a formal one is worth making.
- Plan the return to the bank. If the reason for the decline will pass, make that the exit.
If an unsecured cash flow lender said no rather than a bank, Paul's video on cash flow lender declines is the closer match, and secured and unsecured business loans explains the difference between the two.
Questions people ask next
Should I ask the bank why it said no?
Will a bank decline show on my credit file?
Can I go back to the bank later?
The video is the short version. The written guide has the detail: what to do after being declined for a business loan.
To talk it through about your own property, ring a Lending Manager on 1300 93 83 87, Mon–Fri, 8:30am – 5:30pm Melbourne time.
More videos
See if you qualify in sixty seconds
Three short questions, no credit check to apply and no financial statements. A Lending Manager reads it and calls you back with a real answer — not a call centre, not an algorithm.
That's the HomeSec Advantage.
Reviewed by Jason Brockmuller, Joint Chief Executive