When it comes to financing a business, there are actually two credit scores to consider. Your personal credit score and that of your business can both come into play. Of course, when applying for startup loans, there is not going to be a credit score for the business because the business has not yet been in existence long enough. This does not mean, however, that the owner’s personal credit score will be used by default. Some business loans, such as some of those offered by the Small Business Administration, still use only the information of the business. So exactly how does this credit monster affect business financing? The answer is: it depends.
While some lenders do not look to the entrepreneur’s personal credit even when considering financing for a start up, most traditional lenders will; to some varying extent. Poor credit may not negate any chance of obtaining a loan to start a business, but it will definitely affect the interest rate and terms at which the loan is approved. As the business becomes more established and gains success however, there may be an opportunity to rework or change terms and rate.
An established business will be less likely to need to rely on the credit of its owner to receive financing. That is, of course, if the business has respectable credit itself. Just a few late payments on the business credit cards however can wreak havoc on a business’s credit score. This can affect loan terms and rates until the situation is remedied. However, some business owners may choose to work through a personal financing product, such as a home equity line of credit rather than a business line of credit, if the terms are better. This can be risky, but it is an option that cannot be ignored.
Options for Bad Credit
Business loan rates vary for a number of reasons. There are loans specifically designed for those that have bad credit. Bad credit loans are available for all types of financing, including business financing, but they often carry a hefty interest rate to mitigate the risk of making a bad credit loan.
What to Do
If you are seeking business loans and credit could be an issue, there is help to work through the options. Small Business Loan Marketplaces such as Biz2Credit.com can help you avoid wasting time with loans that you are not eligible for and help find lenders with products that suit your needs and situation. The process is simple and most often free for borrowers. Simply fill out an online form and wait for Biz2Credit to find lenders and products that may work for you, while taking credit into account.
This article was submitted by Faith Stewart. Faith Stewart has a BBA with a major in accounting and spent 10 years working in the various aspects of accounting and finance before pursuing her passion for writing.