There’s no question, small business lenders look at your credit score and make assumptions about you and your business. A good credit score could make securing a small business loan a lot easier, while a bad score will likely make it more difficult.
A good attorney doesn’t ask a question he or she doesn’t already know the answer to. It just doesn’t make sense to visit the local bank or even look online for a loan if you don’t know your credit score. And, for most Main Street business owners, that means your business credit score and your personal credit score—yes, you have two scores and you should know both of them. In fact, on Main Street, where businesses are typically smaller, your personal credit score is just as important (sometimes even more important) than your business score.
If you don’t know your score, it’s easier than ever to find out what it is. The three major credit reporting bureaus, Experian, Equifax, and TransUnion all offer an inexpensive peek into what lenders are seeing. In addition to your score, you’ll also have visibility into what any of your creditors have reported to the bureaus about you and your credit history.
Although the three reporting bureaus look at scoring a little differently, and every lender has a credit threshold they won’t go below, here is a good starting place to see how a lender might evaluate your score when they’re making decisions about you, your creditworthiness, and a small business loan:
- Below 579:Bad—Although there is some financing available for borrowers with this type of credit score, it is considered a very high-risk loan and likely comes attached to a high interest rate. It’s very unlikely a traditional loan is an option and it’s possible a borrower with this credit score won’t quality for any type of credit (depending on other factors a lender might consider).
- 580-619:Poor—This is considered a high-risk credit score. A borrower with a credit score within this range should expect to pay a higher interest rate. It is also unlikely this borrower will find success at the local bank.
- 620-679:OK—This is considered a moderate-risk credit score. Although a small business loan is very possible, this borrower will likely not be offered a low-rate. If this is where your credit score falls, expect to pay a moderate to high interest rate.
- 680-719: Good—This is considered a good score and many Americans fall within this range. A borrower with this type of score can expect to see more approvals and better interest rates.
- 720-799: Very Good—If your credit score falls within this range, you are considered a low-risk borrower and will be able to go just about anywhere to get the loan you need. A borrower with this credit score shouldn’t have any trouble at the bank or any lender and should expect to be offered excellent interest rates along with other possible perks.
- Above 800: Excellent—Borrowers with a credit score above 800 can pretty much expect lenders to roll out the red carpet. If this describes you, expect the best interest rates and most favorable terms.
Of course the above is only a guide, but should give you a really good idea of what to expect when you consider your credit score and what you’re looking for. Of course there are circumstances when a good borrower might have a less-than-perfect credit score. The Great Recession did everything it could to bring small business owners to their knees. With that in mind, there are other things (like a business plan, etc) they will take into consideration.
Most lenders want to know that you are able and willing to repay a loan. One lender once told me, “Credit score is really just a reflection of a borrower’s willingness to meet their financial obligations.” Although that might be an over simplification in some circumstances, I think it’s safe to say that’s how most lenders look at it.