Are you applying for a business loan? Commercial lenders may look at both your business and personal credit scores before they approve your application. If you have poor personal credit and you’re wondering if it will affect your approval or the terms of your commercial loan, the answer is yes, it can. However, negative items on your personal credit history don’t mean you should give up on applying for financing.
To learn more about how personal credit can affect the process of applying for a business loan, keep reading.
Why Is Credit So Important for Loan Approval?
Whether you’re applying for a personal or business loan, lenders are going to take a detailed look at your credit history to determine the risk involved in providing you with financing. Your credit history shows lenders how well you manage your debts and whether you make payments on time, and it also reports how much money you have borrowed in the past and whether you have ever declared bankruptcy. These factors can tell a lender a lot about the risk they’ll take on if they offer you a loan.
RELATED ARTICLE: How Do Commercial Financing Partners Evaluate Loan Applications?
Will Lenders Always Consider My Personal Credit for A Business Loan?
Most lenders will at least look at your personal credit history when determining your eligibility for a business loan. However, some lenders will put less weight in your personal score than others. And if you already have an established history of good business credit, lenders may put even less weight on a lower personal credit score.
In general, you can expect your personal credit to matter more for a business loan when any (or all) of the following are true:
1. You’re Applying for Financing With a Bank or Other Traditional Lender
Banks have strict requirements for lending and don’t have the luxury of being very flexible. On the other hand, independent financing partners like Team Financial Group can provide financing to business owners in a much wider range of circ*mstances than a bank can.
2. Your Company Is a Start-Up or a Very Small Business
If lenders don’t have enough information to determine your creditworthiness from your business score, they will weigh your personal score more heavily. And if you own a sole proprietorship or a small business with only a few employees, it may be hard for a traditional lender to see the distinction between your business’ credit history and your personal credit.
3. Your Personal Credit Is Considerably Low
A few older negative items on your personal credit report shouldn’t make it difficult to receive a business loan, especially if your business’ credit history is strong. However, the more negative items there are on your personal credit history, the more a lender is going to take notice and factor it into their risk assessment.
What Effects Will My Personal Credit Have on My Business?
Your credit history—both personal and business—is only one factor lenders use to evaluate your application, not the be-all and end-all of the financing process. However, credit history is an important factor, and it can have a variety of effects on your ability to acquire the financing you need. Your business and personal credit histories can affect:
- Whether or not you get approved for a loan
- Your options for terms and payment schedules
- The interest rate on your loan
- The total amount of financing that lenders are willing to provide
What if I Have a Valid Reason for Having Poor Personal Credit?
Independent financing partners have much more flexibility than banks, and they don’t have to treat an applicant’s history as nothing more than a credit score number. For example, if you have poor personal credit due to a single devastating event that does not reflect on your ability to manage your personal funds, an independent financing partner shouldn’t treat this circ*mstance the same as if you have a long and consistent history of making late payments or defaulting on debts.
RELATED BLOG ARTICLE: 4 Tips to Improve Your Business Credit Score (and Why You Need To)
Team Financial Group: Fast, Flexible Commercial Equipment Financing
There are many benefits to working with an independent lender like Team Financial Group rather than a traditional bank. Besides offering faster financing approvals and more personalized service, Team Financial Group can also provide more flexibility in terms of financing terms and payment options, even if you have issues with your personal credit score.
At Team Financial Group, we will work with you to determine your best financing option and suggest ways you can improve your financing terms if you have a credit score that’s less than ideal. Get the financing process started today by calling 616-735-2393 or completing our easy online application.
The content provided here is for informational purposes only. For financial advice, pleasecontact our commercial financing experts.
I've got you covered! The article delves into the symbiotic relationship between personal and business credit when seeking a commercial loan. Understanding this dynamic is crucial, especially when applying for financing.
Firstly, personal credit scores significantly impact business loan approvals. Lenders scrutinize personal credit histories to gauge risk. An impeccable record indicates responsible debt management and timely payments, boosting your chances of approval.
However, this doesn't imply that a poor personal credit score is an insurmountable barrier. Factors like established robust business credit and alternative financing options from independent lenders offer avenues for approval, sometimes with less emphasis on personal credit.
The article also highlights scenarios where personal credit bears more weight:
- Traditional Lenders and Banks: Their stringent criteria make personal credit crucial in loan assessments.
- Start-Ups or Small Businesses: Limited business credit data elevates the importance of personal credit.
- Considerably Low Personal Credit: More negative items can lead lenders to factor this into risk assessment.
Effects on business stemming from personal credit include loan approval likelihood, terms and payment options, interest rates, and total financing available.
Now, if there's a valid reason for poor personal credit, independent financing partners might offer more flexibility. For instance, a single catastrophic event versus a consistent history of financial mismanagement can sway their decision.
The article also touches upon strategies for improving business credit scores and highlights the benefits of opting for independent lenders, such as Team Financial Group. They offer faster approvals, tailored services, and flexible financing options, even for those with less-than-ideal personal credit scores.
In essence, while personal credit plays a pivotal role, especially in certain contexts, it's not the sole determinant for commercial loan approvals. Factors like business credit, lender flexibility, and mitigating circ*mstances can influence outcomes.
If you're eyeing commercial financing, understanding this intricate interplay between personal and business credit is pivotal. It's a holistic evaluation, not solely reliant on a credit score.
And remember, for personalized financial advice tailored to your specific situation, reaching out to commercial financing experts is always recommended.
