Few things are easy about launching and operating a small business, and business owners face all sorts of challenges on the path to success. Many of these challenges relate to finances and how to acquire business loans to launch or sustain a new venture. Small business owners might be surprised to learn that business lenders often ask for a proprietor’s business credit scores and personal credit scores as part of the process to take out a small business loan. Here’s why both scores are needed:
Your Personal Credit Score Says a Lot
A lender can learn a great deal about the creditworthiness and financial standing of a business owner by reviewing his or her personal credit report. A strong credit score is reviewed, along with other factors, to demonstrate the likelihood that a business will be well managed and successful. A personal credit score may also be requested because many lenders require a small business owner to personally guarantee loan repayment. In this case, the owner’s credit score will factor heavily into a lender’s decision to grant access to funding.
Monitoring Your Personal Credit and Your Business Credit
Your small business loan will likely depend on your personal credit, so it’s critical to understand and monitor your score. Personal credit scores may fluctuate over time, based on a variety of factors, and consistent monitoring is key. There are all sorts of credit score providers and monitoring services online that are cost-effective and a great option for small business owners unsure of their personal profile. For a small fee, many credit monitoring companies will provide ongoing access into your score and notify you of any significant changes or events—a valuable tool as your business grows.
Is Poor Credit a Roadblock?
Many people seeking small business credit express concern that their own poor credit could be a hindrance. While a poor personal or business credit score can be challenging to navigate, it’s certainly not the end of the road. Bear in mind that your credit score is one of many factors that combine to determine your potential for success.
If you do have a credit score that is lower than you like, you can take specific steps to begin improving it. This is not a fast process and, at times, may feel like it is moving at a snail’s pace, but slow and steady makes a difference in this effort. And remember that using a secured credit card, never missing a payment and working with a professional to improve your personal credit score can all help you move forward. Completing these steps before you apply for your small business loan will better position you for success when it comes time to apply.
Do you have questions about your personal or business credit score? To discuss your financial situation with a nonbank lender, contact our lending partner Fundation to discuss the conventional term loan options best suited for your specific needs.