Does Personal Credit Matter for Business Loans?
For any type of business loan, lenders will want to look at your personal credit. While it makes sense that lenders would want to review your business’s financials and credit score, it is less apparent why lenders would also need to know about your personal credit history.
To a large extent, your personal credit can be one of the most crucial factors when you are applying for a business loan.
What is a Personal Credit Score?
Just as a business credit score shows how creditworthy your business has been, a personal credit score shows how creditworthy you personally have been over the course of your life. If you have been paying your bills on time and not max out your credit limit, then you should have good or excellent credit score.
Why Do Lenders Care?
Lenders care about your personal credit score because it is another clear measure of your creditworthiness. Even if your business has a good credit history, lenders would be reluctant to give you a business loan if your personal credit shows that you may be unreliable about repayment.
When you apply for a business loan, lenders may require you to personally guarantee the loan based on your personal credit. This is especially true for startups and businesses that have not yet established a solid business credit history.
Finally, unlike your personal credit score, your business credit score does not stay with you for life—it stays with the business. If you sell your business to someone, your business credit score transfers to the new business owner. Thus, your personal credit score gives lenders a more comprehensive overview of how creditworthy you have been over the course of your life.
Does Poor Personal Credit Matter?
Yes, very much so. Even if your business has a nearly perfect credit score, if your personal credit score is underwhelming at less than 650, then you can reasonably be expected to be denied for most loans. For example, the strict requirements of SBA loans would disqualify you almost immediately.
What Can You Do?
There are other flexible financing options, like invoice factoring, that would still provide funding to your business despite a poor personal credit. Although invoice factoring still takes personal credit history into account, as long as your business has outstanding invoices and creditworthy customers, your business would be applicable for invoice factoring even when other lending options would immediately deny you.
Accel Business Funding can fund business owners with low personal credit scores and businesses with prior bankruptcies. We’re ready to work with you and help you meet your funding needs!