Personal credit can impact the borrowing ability of a business owner. However, many business owners do not know what this impact is, what they have in their profile, or what they should do to improve their score for increased chances. There are usually two profiles: personal and business credit profiles, and both affect business loan approval. Below, we’ll explore how credit scores can affect loan approvals.
Credit score significance in lending
A credit score is very important in the world of lending and for other options like express loans. It lets lenders know how credit-worthy you are and assess your lending risk. A credit score is determined via several factors like credit history length, credit type, credit utilization, and payment history.
When you intend to take a small business loan, credit scores show your debt management ability. A tall credit score indicates you have a low-risk profile, which is very attractive to lenders. Conversely, lower credit scores pose a creditworthiness issue. This can affect your ability to get a loan.
The importance of good credit
An essential requirement for every business owner to apply for a small business loan is to have their credit history assessed by the creditor during the process of application. The reason for this is to know if you are creditworthy.
How personal credit score affects businesses
The personal credit of a business owner is essential during the evaluation process. Business owner’s credit score usually shows their repayment ability and financial responsibility. Other factors lenders also consider include experience and the borrower’s character. Sometimes, they could offer support and guidance to borrowers with their financial management skills and improve their creditworthiness.
However, borrowers must note that the requirements for credit scores vary based on the lender. You must speak with various lenders to know their specific credit score requirements for every loan program. Doing this helps you understand the lenders whose requirements align with your credit profile, increasing your ability to get the loan.
Factors lenders consider during the evaluation process
One of the factors lenders consider is a business owner’s payment history. They access the payment history to know if you make timely payments. Paying consistently positively affects the credit score. On the flip side, late payments can negatively affect credit scores.
Lenders also consider the times you have had credit accounts. More extended credits allow lenders to know your creditworthiness, which can influence their requirements for credit score. A big credit score borrower who is relatively new might be less attractive than an older one with a long credit history and a low credit score. Lastly, they also consider public records such as judgments, legal proceedings, divorces, liens, or bankruptcies that could affect your loan eligibility and credit scores.
Credit scores are critical in SBA loan applications. Lenders use them to assess borrowers’ ability to repay loans and creditworthiness. Though different SBA loan programs have various minimum credit score requirements, having an excessive credit score usually increases your chance of loan approval and better loan terms.