Small business owners have a lot of challenges that need to be addressed in order to find success. Unsurprisingly, many of these are financially based, which is why so many people find themselves taking out business loans to get things off the ground. That being said, some small business owners are often surprised to find that business lenders will often ask for business credit scores and personal credit scores when taking out a small business loan—here’s why.
Your Personal Credit Score Still Matters
Many small businesses are operated by either one or two individual owners. Lenders can therefore learn a lot about the creditworthiness of the business and the financial acumen of the owners by looking at the owners’ personal credit report. A good personal credit score, combined with other factors, may indicate to a lender that the business is likely to be well-managed and successful. Additionally, many lenders require a small business owner to personally guaranty the repayment of the loan, in which case the owner’s credit score would factor heavily in the lender’s determination of whether the personal guaranty would be effective.
The Importance of Knowing Your Personal Credit Score Along With Your Business Credit Score
Since an initial small business loan will most likely be contingent upon your personal credit score, it’s extremely important to know where you stand. Personal credit scores can shift and change over time—occasionally, to a drastic extent, depending on the circumstances. There are many affordable credit score providers online for those who are looking to get small business loans and who aren’t sure of their personal profile.
If you’re willing to spend a bit of money, those companies will not only allow you access to personal and small business credit reports from all three major bureaus, but you’ll be notified of any major changes that occur, as they happen.
What if My Personal Credit Score Is Poor?
This is a common question among those who are looking to obtain small business credit. A poor personal credit score, just like a poor business credit score, can be challenging to overcome, but it’s important to realize that it doesn’t tell the whole story of who you are and what your business is capable of.
It’s possible to improve your personal credit score if you take the right steps to do it. This can be a time-consuming process, and it’s not uncommon for people to feel as if they’re not making any progress. Using a secured credit card, making sure never to miss payments and working with a professional to improve your personal credit score can all be helpful. If you can do this before requesting a small business loan, you’ll be in even better shape.
Have questions about your personal or business credit score and want to discuss your financial situation with a nonbank lender? Contact Fundation to discuss the conventional term loan options suited for your company’s specific needs and situation.
