Does Credit History Matter for Small Business Loans

Does Credit History Matter for Small Business Loans?

Many business owners find distinguishing their finances from their company’s challenging, making it hard to secure loans without an acceptable personal credit score.

Aspiring small business owners and startups should recognize that having poor personal credit may make obtaining loans impossible or will come with unfavorable terms; to improve this situation, it’s critical to establish strong business credit from an early stage.

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Your Personal Credit Score

Many small businesses require business loans to expand. Utility providers assess credit scores when determining service eligibility, while vendors and lenders also consider your credit score when reviewing funding applications.

Lenders consider your company’s loan balances, their values, and payments over time to assess your ability to repay debts. Public records such as lawsuits, liens, or judgments also play a factor.

Many small business owners want to maintain separate finances for themselves and their companies, yet obtaining loans without an impeccable credit history can be challenging.

A poor personal credit score could deter lenders from providing business loans or lead them to offer unfavorable terms and conditions; property managers also use credit scores when determining whether to rent office space.

Your Business Credit Score

Small business loan lenders frequently check a company’s credit score┬ábefore offering financing since this metric indicates how well its owners handle money and whether or not they have developed sound financial practices. Like personal credit scores, paying bills on time and avoiding high debt utilization are key factors in establishing strong business credit scores.

Using an EIN rather than an SSN when applying for loans or selecting credit cards can help your business increase its score. Furthermore, regularly review your business credit report to ensure all the information is accurate, resolving any discrepancies promptly and disputing errors as quickly as possible.

When looking for lenders or creditors, be sure to ask whether they report to business credit bureaus and require personal guarantees before lending money – keeping personal finances separate is vital!


Many lenders require collateral as security for business loans. You pledge the asset as protection in case of default on your loan payments; should that happen, your lender could repossess and sell off the collateral to recoup their costs.

By offering collateral as security against loans with lower interest rates or more significant loan amounts than an unsecured credit card can offer, such as business lines of credit and merchant cash advances. Lenders take less risk with collateral-backed loans, so they may provide this type of funding even to borrowers without excellent credit history or those unable to secure an unsecured loan.

Before applying for a small business loan, make sure you do your research and compare collateral requirements across lenders. By making timely payments and lowering your credit utilization ratio, you may build business credit and qualify for more funding.

Interest Rates

Interest rates are one of the key determinants of business loan costs, with lower rates being offered by lenders when your business appears as being low risk, meaning high revenue and strong cash flow.

Lenders want to ensure they’re lending money to borrowers who will repay it, which means charging higher rates to high-risk ones. Therefore, maintaining a solid personal and business credit profile can help ensure you qualify for the most advantageous loans available.

Repayment terms also play an integral part in how much you’ll pay in total; shorter loan repayment periods often result in lower interest rates than longer ones.

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