Securing a business loan can be difficult — especially if you don’t have strong personal credit. Beginning entrepreneurs and small business owners often put all of their focus on their business plan and product but what they don’t realize is that their personal credit score can make or break their chances of getting a business loan.
Your credit score is one of the first things that lenders will look at when you apply for a business loan. A high credit score signals to lenders that you’re a lower-risk borrower, which means you’re more likely to repay your loan on time.
In this article, we’ll discuss what credit score you need for a business loan and how you can improve your chances of getting approved.
What Is a Credit Score?
A credit score is a numerical representation of your creditworthiness. Lenders use it to determine whether or not you’re a good candidate for a loan.
There are two main types of credit scores: personal and business. Personal credit scores are calculated using information from your personal credit reports, such as your payment history and outstanding debts. Business credit scores are calculated using information from your business credit reports, such as your payment history with vendors and business debt outstanding.
What Is a Good Credit Score?
The definition of a good credit score varies from lender to lender, but generally speaking, a score of 700 or above is considered good. Scores in the 800s are considered excellent.
If your credit score is below 700, you may very well still be able to get a business loan, but you’ll likely have to pay a higher interest rate.
What Credit Score Do You Need For a Business Loan?
Most lenders require a personal credit score of 640 or higher to qualify for a business loan. However, there are some providers who will make loans to business owners with lower personal credit scores.
What Is a Bad Credit Score?
A bad credit score is generally considered to be below 640. If your credit score is in this range, it’s still possible to get a business loan, but you’ll likely have to pay a higher interest rate and may be required to provide collateral.
How To Improve Your Credit Score Before Applying For a Business Loan
If your credit score is below 640, there are a few things you can do to improve your chances of getting approved for a business loan.
First, make sure to check your personal and business credit reports for accuracy. If you find any errors, dispute them with the credit bureau.
Next, focus on paying down your outstanding debts. The lower your debt-to-credit ratio, the better.
Finally, make sure you’re paying all of your bills on time. Payment history is one of the biggest factors that influence your credit score.
By following these tips, you can improve your credit score and increase your chances of getting approved for a business loan.
What Happens If Your Credit Score Is Too Low To Qualify For a Traditional Loan?
If your credit score is too low to qualify for a traditional business loan, there are a few other options you can consider.
One option is to apply for a personal loan and use the funds for your business. This can be a good option if you have strong personal credit but keep in mind that you’ll likely have to pay a higher interest rate.
Another option is to find a cosigner with good credit to help you qualify for a loan. This person will be responsible for repaying the loan if you default, so make sure you choose someone you trust.
You can try applying for a business credit card. Business credit cards typically have higher credit limits and lower interest rates than personal credit cards, making them a good option for business owners with lower credit.
Finally, you can apply for financing or leasing programs, which can be a good option for business owners with bad credit who need equipment or vehicles. This is also a good way to prove to lenders that you’re a responsible borrower and improve your chances of getting approved for a business loan in the future.
No matter what your credit score is, there are financing options available to you. By taking the time to research your choices and improve your credit score, you can increase your chances of getting approved for the loan you need.
Get Started Building Your Credit Score With Charter Capital
Need to acquire or lease equipment for your business? We can help. At Charter Capital, we specialize in providing financing and leasing options for small business owners. We understand the pain points and challenges small businesses face when applying for financing and we’re here to help. Improve your credit score and get the equipment you need with our easy-to-use online application.