If you need a small business loan, it may seem like a complicated process due to all of the necessary requirements involved. The kind of loan you need will determine what those requirements are, but you can safely bet your personal credit score will be among those criteria.
To put it simply, the better the personal credit score you have, the better your chances will be of getting a business loan. The credit score helps the underwriters determine how creditworthy a borrower is and how much risk there is in issuing the loan. A lower score can decrease the chances of securing the loan or completely remove the borrower from consideration.
Is there a minimum credit score for a business loan?
Most loans are dependent on the specific situation of the borrower and their business, and there usually isn’t an exact universal credit score number that needs to be met. Each lending institution will have its own credit score minimum to determine a borrower’s eligibility. In addition to a minimum score, other criteria will have to be met such as annual revenue, time in business, and/or a business credit score. Below is a general idea of what kind of credit scores are necessary for different types of loans.
Credit Score: 750 – 850
Anything above 750 is considered an excellent credit score. If your credit score is at or above 750, you have several options for different types of loans including traditional bank loans, business lines of credit, and SBA loans, and you’ll also be able to get loans with lower APRs.
Credit Score: 700 – 749
A credit score below 750 and at or above 700 is considered a very good credit score, and you’ll still have access to some great business loans like SBA loans and bank loans. Some of the other factors mentioned earlier would be necessary to receive the very best rates.
Credit Score: 640 – 699
If your credit score falls in the range of 640 to 699, it’s still considered good, just not very good or excellent. It will be more difficult to qualify for SBA or bank loans, but not impossible. You just have to have other incredibly strong business credentials to receive these types of loans, and you may need to consider some alternative lending options. Also, if you are in this range and closer to the lower end of 640, there might be some equipment financing available in addition to medium-term loans.
Credit Score: 600 – 639
Most SBA loans and bank loans won’t be available with a credit score in this range, but if you have strong business credentials, you could still receive some medium-term loans or equipment financing.
Credit Score: 551 – 599
With a credit score in this range, you’ll have a hard time finding any funding options. There could be some with incredibly high interest rates, but be careful if you take this route. You might be digging yourself into a hole you can never get out of, and you may do even more damage to your credit.
Credit Score: Below 550
If your credit score is in this range, you will be hard-pressed to find any lending institution willing to work with you. This personal credit score is just too low to great of a risk for lenders.
How to raise your credit score:
It’s always a good idea to keep your credit score as high as possible, and there are many ways to do that. The list below tells you what factors into your credit score.
FICO score criteria:
- Length of credit history
- Credit capacity
- Payment history
- Hard credit inquiries
- How your credit cards are used
- Tax liens
To raise your credit score, begin with the following steps:
- Put a plan together to pay down debt. The credit capacity or debt to available credit ratio is a huge factor in your credit score.
- Pay your bills monthly and on time. Lenders want to know that they will receive payments.
- Contact any business with a collection against you and try to work out a payment plan.
- If there are any issues with your credit that you believe are an error. Submit a request to have them removed to each of the credit agencies: Equifax, TransUnion, and Experian.
Taking the steps above will boost your credit score and could put you into the next level. you can monitor your credit score for free and manage your progress with sites like Credit Karma. It is a good idea to always consider your credit score when making any financial decision and try to keep the score as high as possible. It will greatly increase your chance of qualifying for personal and business loan opportunities.