How SME lenders assess a deal: the criteria behind every yes and no

Every SME lender has its own credit policy, but most ask the same handful of questions. Some are hard limits that rule a deal in or out on their own. Others feed into a judgement about risk and pricing. Knowing which is which is most of the job when you're working out where a deal fits.

This guide walks through the criteria in roughly the order lenders apply them.

Hard limits and judgement calls

It helps to split policy into two kinds of rule.

Hard limits are yes-or-no. Below the minimum time in business, below the minimum turnover, in an excluded industry, or above the maximum loan size, and the answer is no, however strong the rest of the file is.

Judgement calls are weighed together: the strength of the cashflow, the credit history, how much debt the business already carries, and how well the deal is explained. These shape whether the lender says yes, how much it offers and at what price.

Most wasted time in SME broking comes from sending a deal to a lender that fails a hard limit nobody checked. The criteria below include both kinds.

1. Loan purpose and product

Lenders first want to know what the money is for. Working capital, a one-off purchase, an acquisition and a refinance call for different products, and a lender may like one purpose and avoid another. For working capital, see Business line of credit vs overdraft.

Purpose also matters for regulation. Credit predominantly for business purposes generally sits outside the National Credit Code, and lenders take care that business purpose declarations are used properly (Brightlaw). Expect to be asked to confirm the purpose in writing.

2. Time in business

Time in business is one of the most common hard limits. It's usually measured from when the business started trading, often checked against the ABN and GST registration dates and the bank statements.

Lenders use it because a longer trading history gives them more evidence that the business can survive ups and downs. Minimums vary a lot between lenders and products. Unsecured lending typically asks for more trading history than lending secured by property.

What to check: when the ABN was registered, whether the business changed structure (for example, from sole trader to company), and whether the lender counts the earlier history.

3. Turnover and cashflow

Most lenders set a minimum turnover, usually expressed as monthly or annual revenue. Many non-bank lenders also read the bank statements closely to see how that revenue behaves:

• how consistent deposits are from month to month

• the average daily or month-end balance

• days in overdraft or with a negative balance

• dishonoured payments

• repayments to other lenders

For many cashflow lenders, the bank statements are the main evidence. Turnover sets the ceiling on how much they'll lend.

What to check: whether the turnover the client quotes matches what actually lands in the account, and whether anything in the statements needs explaining before the lender sees it.

4. Credit history

Lenders check the credit files of the business and, usually, its directors or guarantors. Australia's main credit reporting bodies include Equifax and Experian, which completed its acquisition of illion in 2024 (Experian). Lenders differ in which bureau they use.

They look at:

• credit scores, where the lender uses them

• defaults, judgements and court actions

• the number and timing of recent credit enquiries

• insolvency events for the business or directors

Many lenders set limits here too, for example no unpaid defaults above a certain amount, or no recent bankruptcy. Others accept paid defaults with an explanation.

What to check: pull the facts before you submit. A default the client forgot about is a common reason for a surprise decline.

5. ATO debt

Tax debt is common among small businesses and lenders treat it carefully. The RBA has noted that the ATO is one of the largest lenders to small business through unpaid tax and payment plans, and that unpaid tax debts hurt creditworthiness (RBA, 2018).

Some tax debts now appear on credit reports. The ATO can report a business's tax debt to credit reporting bureaus when all of these apply (ATO):

• the business has an ABN and is not an excluded entity

• at least $100,000 of tax debt is overdue by more than 90 days

• the business is not engaging with the ATO to manage the debt, for example through a payment plan it's complying with

• there's no active Tax Ombudsman complaint about the ATO's intention to report

The ATO gives written notice first, and the business has 28 days to act.

Lenders' policies on ATO debt vary. Some won't lend while any debt is outstanding. Others will if there's a payment plan being met. Some will lend to pay the ATO out.

What to check: the amount, whether there's a payment plan, whether it's being kept up, and an ATO portal statement to prove it.

6. Industry

Most lenders keep a list of industries they restrict or exclude, based on their experience of losses, the funder's requirements, or reputational concerns. The lists differ between lenders, and they change.

What to check: the exact nature of the business, not just its broad category. Lenders often make the call based on the ANZSIC code or a description of what the business actually does.

7. Existing debt

Lenders want to know what the business already owes and what it repays. Several short-term loans on the same bank statement, sometimes called stacking, is a common reason for a decline or a reduced offer. Lenders worry about the combined repayments and about where they'd rank if things went wrong.

What to check: list every facility, its repayment amount and frequency, and whether the new loan will refinance any of them.

8. Security and guarantees

For secured products, the lender assesses the security: property value and existing mortgages for property-backed loans, or the business's assets under a general security agreement. Many lenders also ask for personal guarantees from directors, even on unsecured loans.

What to check: who will guarantee, whether they understand what that means, and whether the security offered matches the product.

9. The amount and the term

Finally, the deal has to fit within the lender's minimum and maximum loan size and term for that product. A good deal at the wrong size is still a decline.

How brokers use this

Looking at policy this way changes how you prepare a deal.

1. Check the hard limits first. Time in business, turnover, industry, loan size and any non-negotiable credit rules.

2. Explain the judgement calls up front. A short note on a past default, a dip in turnover or an ATO payment plan reads far better before the lender finds it.

3. Send it to lenders that fit. Fewer, better-matched submissions mean faster answers and fewer credit enquiries on the client's file.

The hard part is that policy is spread across dozens of product guides that change regularly. Visro checks a scenario against every lender on its panel and shows, for each one, whether it fits, and the specific rule behind every no.

Sources

• ATO: Criteria for reporting business tax debts

• RBA Bulletin, September 2018: Access to small business finance

• Brightlaw: Business and investment loans, regulated or not?

• Experian: Experian completes A$820m acquisition of illion

This article is general information only. It isn't legal, financial or credit advice and doesn't take into account anyone's circumstances. Every lender's policy is different and changes over time, so always confirm details with the lender. Visro does not provide credit assistance or financial advice.