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When you apply for a business loan, the lender will likely look at both your personal and business credit scores. Minimum requirements vary widely, depending on the lender and type of loan. But, generally, a good personal score to get a business loan is 720 and above, while a good business credit score is often 80 or above.But even if your credit scores don’t meet those minimums, or you’re not even sure if you have acredit score for your business, you still have plenty of options. Read on to learn about credit requirements for different types of small business loans and what you can do if your scores are less-than perfect.
What Is a Business Credit Score?
You’re likely well aware that you have a personal credit score. Your personal credit is connected to you by your Social Security number and relates to your personal financial history. If you’ve ever applied for a car loan or home mortgage, lenders have looked at your personal credit scores to determine how financially responsible you are, and what sort of risk you present as a borrower. There are also credit scores for businesses. Your business credit is linked to you by your Employer Identification Number (EIN), which is how the government recognizes your business for tax purposes. Like your personal credit score, your business credit score is a measure of your historical reliability with your financial commitments. The difference is that this credit profile specifically tracks your business’s financial history.
Types of Business Credit Scores
There are three credit bureaus that measure your business credit scores: Experian, Equifax, and Dun & Bradstreet. While most credit bureaus will give you a single credit score ranging from 1 to 100, an Equifax business credit report will give you three scores: Payment Index, Business Credit Risk Score, and Business Failure Score.As a small business, you also might encounter something called a FICO SBSS (Small Business Scoring Service) score, which uses information from all three bureaus. Not all lenders require a FICO SBSS score, but you will likely need one if you are applying for a loan backed by the U.S. Small Business Administration (SBA). Your FICO SBSS score will land somewhere between zero and 300.
What Is Considered a Good Business Credit Score?
If a lender wants to see your credit score for business loans, it may look at one (or more) scores from the three business credit bureaus. Each has its own scoring range. Some credit bureaus divide scores into five risk categories, while others divide scores into three categories.
Experian Intelliscore
Equifax Payment Index Score
Dun & Bradstreet PAYDEX
FICO SBSS
Low risk
76-100
80-100
80-100
300
Low to medium risk
51-75
60-79
Moderate risk
26-50
40-59
50-79
160-300
Moderate to high risk
11-25
20-39
Fitting into one of these risk levels doesn’t necessarily translate into certain success or assured failure in accessing funds. Higher scores, however, can certainly help your odds, while lower scores can translate into smaller loan amounts, higher interest rates, shorter repayment terms, or being denied approval for the loan.Whatever your scores, it can be a good idea to shop around and compare business loan rates to make sure you get the best rates and terms possible for your business.
What Impacts Business Credit Scores
Each of the business credit bureaus uses a slightly different “secret formula” for determining your credit score for small business loans, but, generally, these factors weigh in:
How much debt your business has compared to its available credit
So what credit score do you need for a business loan? It depends on the lender and the business credit score system they look at. No matter what your credit score is, there are all types of business loans you may qualify for.Let’s look at the FICO credit score (both business and personal) for business loans of different types.
SBA Credit Score Requirements
The Small Business Administration looks at the FICO SBSS credit score for SBA loans like the 7(a) and 504. Here are the minimum requirements set by the SBA (keep in mind that individual lenders may require higher scores):
7(a) Small Loans: 155
Community Advantage: 140
Express Bridge Loan Pilot Program: 130
If your business doesn’t have a FICO SBSS score, SBA lenders may look at your personal FICO (which ranges from 300-850). In that case, you’ll generally need a minimum score between 620 and 650, depending on the type of loan and lender. Those with personal credit scores of 720 or higher typically have the best chance of getting approved for an SBA loan.
Bank Loan Credit Score Requirements
Banks can set their own credit score requirements, and often they’re even more stringent than what the SBA requires. Check for specific bank credit score requirements before applying for a loan.
Equipment Financing Credit Scores
If you don’t have good credit but want to buy equipment, an equipment loan (also called equipment financing) can be a good option. Credit score requirements tend to be less strict for equipment loans because the equipment you’re buying acts as collateral for the loan and therefore reduces the lender’s risk.A personal FICO credit score of 630 may be enough to secure this type of financing. In some cases, you can qualify for equipment financing with personal credit scores in the low 500s.
Short-Term Loan Credit Scores
Another option for financing if you don’t have stellar credit is a short-term loan from an online or alternative lender. These lenders often look less at your credit score for business loans and more at other factors, like your annual revenues.You may be able to get a short-term loan from an alternative lender with a minimum credit personal FICO score of 600, though you’ll want to keep in mind that the lower your credit score, generally the higher your interest rates will be.And if you’re a startup, you may be able to find lenders that don’t require any particular credit score for startup business loans. Many won’t list the required credit score on their applications because they’ll work with you based on your other criteria.
Do Personal Credit Scores Matter for Business Loans?
In many cases, yes. When you apply for a small business loan, lenders will often look at both personal and business scores. If your business hasn’t yet established any credit scores, they will just look at your personal credit scores to determine whether your business qualifies for the loan.
What Is a Good Personal Credit Score?
There are three major credit bureaus that each calculate your personal credit score: Equifax, TransUnion and Experian, and each with its own scoring range.
Equifax
Transunion
Experian FICO
Excellent
800+
781-850
800-850
Very good
740-799
720-780
740-799
Good
670-739
658-719
670-739
Fair
580-669
601-657
580-669
What Factors Affect a Personal Credit Score?
Each personal credit bureau uses different criteria for scoring, but they all generally look at the same factors:
Credit utilization This is how much of your available credit you are currently utilizing. Your credit utilization ratio is calculated by dividing the total revolving credit you are using by the total of all your credit limits. Using more than 30% of your available credit is generally seen as a negative to creditors.
Age of accounts Credit bureaus also take into consideration how old your credit accounts are. The older, the more positive the impact on your credit scores, so you may not want to close credit accounts, even if you no longer use them.
Payment history The bureaus also look at whether you have any late or nonpayments on your accounts. Even one missed payment can have a negative impact on your score.
New credit Agencies also look at the number of credit accounts you've recently opened, as well as the number of hard inquiries lenders make when you apply for credit.
Credit mix Credit scoring models also consider the types of accounts you have, as this can show how well you manage a range of credit products. Those with high scores often carry a diverse mix of credit accounts, such as car loan, credit card, student loan, or mortgage.
If you want to boost your personal credit profile, it can be a good idea to pay your bills on time (consider setting up automatic payments), and work on paying down existing debt, which can help lower your credit utilization ratio. It can also be helpful to avoid applying for multiple loans or credit cards at the same time, as each one can impact your credit score for a short period of time. You may also want to periodically check your credit reports. If you see any discrepancy (maybe you paid off a credit card and that’s not reflected on the report), inform the credit bureau right away so your score reflects accurate information.
What Can You Do if You Have a Low Business Credit Score?
If you don’t need funds right away, a good strategy is to focus on establishing business credit and/or boosting your business credit profile enough to get out of the high risk category. You can start building business credit by opening trade credit accounts with vendors that report financial activity to the business credit bureaus. This might be an office supply store you frequently purchase products from or the company you buy inventory from.You can also build credit by taking out a business credit card and making timely payments.If you need capital right away, you also have options. Here are some ways to secure a loan without strong credit.
Collateral
Some business loans require collateral, which is an asset you put up against the loan. If you are unable to pay off the loan, the lender can seize that asset to cover your debt. Having collateral lowers the risk for the lender, so you may qualify for a loan even with fair credit.
Personal Guarantees
Another option is to provide a personal guarantee. This is an agreement that states that, should your business be unable to pay off the loan, you will be personally responsible for paying it off.
Grants
Small business loans aren’t your only option for finding the money you need. There are also small business grants offered by local and federal governments, corporations, and nonprofits. These grants do not have to be repaid.Most grants have specific criteria a business needs to meet, such as being a minority-, women-, or veteran-owned business, or being in a certain industry. Grants also tend to be competitive, so read the fine print to make sure you qualify and follow the application instructions carefully to increase the odds of being selected. You may even want to try a combination of grants and loans to ensure you have the capital you need for your business.
Are No Credit Check Business Loans Possible?
Yes, it is possible to find a loan that doesn’t look at your credit at all. These lenders may look at other criteria, such as annual revenues, to determine eligibility.These can be great in a pinch, but be aware that no credit check business loans tend to have higher interest rates than more traditional loans. Only you can determine whether it’s worth it to pay that expense. If having the money now means you can take advantage of opportunities for your business or get you out of a tough spot, it may be worth the cost.Crowdfunding and private loans from friends and family are also possibilities.
The Takeaway
Your credit score is one of the key factors that lenders consider in your loan application, since it’s a measure of your financial responsibility. Lenders will typically look at both your personal credit scores and your business credit scores, if available.However, your credit scores are just one part of your business’s financial profile. Lenders will typically take many factors – from your annual revenues to your business plan – into account during the application process. In addition, there are many different types of loan available, so even if your credit scores aren’t excellent, you likely still have options.Curious about what type of loan your business might qualify for? Lantern by SoFi can help. With our online loan comparison platform, you can instantly get access to small business financing options matched to your small business’s needs and qualifications.
Frequently Asked Questions
Is there a minimum credit score needed to start a business?
Can you get a business loan with a 600 credit score?
Can you start a business with no credit and no money?
How can I build my business credit?
Photo credit: iStock/Edwin Tan
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About the Author
Susan Guillory
Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
