Does My Personal Credit Score Affect My Business Loan Eligibility?

Does your personal credit score affect a business loan​? The simple answer is yes. Most business owners applying for a loan will probably realise fairly quickly that their own personal credit score does apply and impact their business’ ability to get funding. However, perhaps the more important question is: how much of an impact does it really have? There seems to be a lot of misunderstanding from SME business owners about how much their personal financial situation and history will affect their business.

The fact is that if you are applying for a business loan, lenders are going to want to take a closer look at your personal finances. This will give them a clearer idea of the risks involved in lending you (or your business) money. Your credit history is the best tool they have for determining how good you are at managing debt and making repayments on time. However, some lenders will put less weight on your personal credit score than others. Plus, if your business has demonstrated that it can handle credit responsibly then your personal credit score will become even less relevant.

It is also true that when you are applying for a SME business loan, the weight of your personal credit score will depend on several key factors. These include the kind of institution you are applying to, the size and age of your business and how your business is currently performing.

Below you can find a closer look at some of the key influencing factors in the business credit vs personal credit debate.

Interconnected Evaluations

Personal credit does in fact impact your business’ ability to get credit. This is especially true for small or newer businesses with a limited credit history of their own. When this is the case, brokers often consider the owner's personal creditworthiness and apply more weight to this as a factor.

Personal Guarantees

Many business loans require personal guarantees, especially if the business is not able to provide any collateral in the form of assets. These guarantees make the owners personally liable for the amount to the loan. This creates a stronger link to their personal credit and ties in more closely with the business' financial obligations. So, personal credit scores may carry more weight in these situations.

Building Business Credit

It is always a good idea to try and establish a strong business credit profile so that the weight is shifted from your own personal credit score. You can do this by opening business accounts, making timely payments and regularly monitoring your business credit report. By building the credit score of the business, lenders and brokers will be more likely to approve loans without placing too much weight on your personal score.

Protecting Personal Credit

Of course, it is always a good idea to safeguard your personal credit while running a business. You should always carefully evaluate loan terms and make on-time payments. You also need to be vigilant and carefully monitor both personal and business credit reports for any errors that might impact your scores.

Remember that both personal and business credit scores serve similar purposes in assessing creditworthiness. Does business credit check personal credit? It does, and if your personal score is more heavily weighted, due to a lack of business credit or assets, this may impact the likelihood of being approved. You also need to keep in mind that multiple unsuccessful applications can negatively affect scores for both you and the business.

Check your eligibility for a business loan or speak to a member of our team today to find out more about your personal credit score and the impact it could have on your business.

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