Personal Credit and Business: How Your Credit Affects Financing Options for Your Business

Business LendingYou might be thinking that since your personal credit rating is just that — personal, it should not have an effect on your business. Regrettably, it does. Plenty of lenders, most especially banks, review the personal credit of an applicant applying for a loan, no matter what the loan is for.

To many business lending services, Provincial Bank explains, your credit rating is a determination of how well you manage your finances — both personal and business. Typically, a low rating signals that you can’t manage your finances properly, and that also holds true for your business finances.

Is the Personal Credit Rating Factor True for All Lenders?

Fortunately for you, the answer is not. Not every lender will thoroughly rely on personal credit rating, or utilize the information in the same manner. The following are lenders who offer business lending services and their general attitude towards personal credit rating:

  1. SBA or Small Business Administration Loans – In general, you’ll need to have a spotless credit rating. The application for SBA loans is extremely extensive and in the majority of cases, you will have to have a FICO score of 700 or higher to even be considered for a loan. However, this certain qualifications will still be dependent on the SBA-approved lender.
  2. Revenue-Based Business Loans – Considering that your business’ cash flow is generally consistent and deposit regularly to your bank, you could leverage your excellent standing and apply for a revenue-based business loan. Banks offering these loans typically evaluate business deposits every six months, along with the consistency level and overall amount of monthly deposits. This means that you may still qualify for a loan even if your personal FICO score is only around 500.
  3. Independent Investors – Your personal credit rating won’t really matter to angel investors or venture capitalists. That said, you will need an extremely solid and sound marketing strategy and business plan, and more importantly, a very sellable service or product.
What This Means For You

Determining the most appropriate financing option for your business will be based on plenty of factors — the loan amount, the revenue model of your business, and the repayments terms of the loan you want to obtain — and not just your personal credit rating.

You can also shop around for loans available to owners with less than perfect credit ratings, such as asset-based loans, cash advances, or account receivables financing. However, fixing your personal credit will provide you with more financing options, so fix it.