Your credit score and history are some of the most important factors in getting a small business loan. Whether you have a separate business credit score, or just your personal one, lenders will use this to help determine if they should let your business borrow money.
We’ll break down how your personal and business credit scores work, how to improve them, and the minimum scores required to be eligible for a small business loan.
How to Get a Business Credit Score
Many business owners don’t realize that their company can have its own credit score, completely separate from their personal one. To get a business credit score, your business needs to be recognized as separate from you. The easiest way to do that is by getting an Employer Identification Number (EIN) from the IRS. Once you’ve been assigned a number, business credit scoring agencies will track the creditworthiness of your business.
The biggest agency that tracks business credit scores is Dun & Bradstreet, and many lenders use their rankings to decide whether to lend to you. The Dun & Bradstreet credit score for your business will range between 0 and 100, with higher being better.
Lenders are also likely to take your personal credit score into account—whether you have a business credit score or not.
How Your Personal Score Impacts Your Business Loan Eligibility
Most small businesses will not have a separate, reliable, established business credit score. In these cases, lenders will use your personal credit history and score as a proxy for your business. A higher personal credit score will improve your chances of getting accepted for a loan and will also affect your repayment terms and the interest rate charged.
Your personal credit score is also particularly important for both secured and unsecured loans. If you are providing a personal guarantee as collateral, this could mean you can apply with a slightly lower credit score. You can get a loan without collateral, but they will generally be more expensive, you will need a higher personal score, and you will probably need to use a specialized lender.
Boosting Your Personal and Business Credit Scores
Despite being separate, the ways you enhance personal and business scores are almost identical.
- Always make existing credit and loan repayments on time and avoid making late payments or defaulting on them.
- Keep your credit usage relatively low, compared to the maximum amount you could borrow. Lenders like to see low credit utilization.
- Have well-established, long-lasting credit accounts with a history of being in good standing.
- Have a reasonable number of credit accounts, as this shows that other lenders trust you.
- Avoid derogatory marks for late payment, judgments against you, delinquencies, tax issues, liens, or bankruptcy.
Factors Unique to Improving a Business Credit Score
These are the factors that will affect a business credit score, but not a personal one:
- The industry and sector you operate in can also affect your credit score, as some are inherently more risky.
- Financial documents that show a healthy balance sheet and good management of cash flow and expenses.
- The size of your business, business licenses, assets owned by the business, how long you have been in business, and tax reporting status.
Since most small businesses will rely on their owner’s personal credit scores, that’s the number we’ll use to explain the minimum scores needed to access certain types of financing.
The Range of Personal Credit Scores
Credit scores typically range from a low of 300 to a high of 850. Equifax describes the range of credit scores as:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Excellent
Typically, you will want a credit score of at least 700 to get reasonable financing terms for your business.
Minimum Personal Credit Scores for Business Loans
Here’s how your personal credit score factors into the likelihood of qualifying for a business loan. Remember: this is just one of many aspects lenders consider throughout the approval process.
Credit Score of 550 and Below
Most lenders will refuse to lend to small businesses if their owners have credit scores in this range. In some cases, you may be able to get a loan from a specialized lender, but the interest rates are likely to be very high. You may also be able to get invoice financing or merchant cash advances, but as always, do your due diligence and proceed with caution.
Credit Score of 550 to 600
At this level, your small business cannot qualify for most types of traditional lending. You may have some access to alternative lenders, but the interest rates will still be high.
Credit Score of 600 to 640
You’re still below the level to qualify for most traditional bank or SBA loans. Your alternative financing options open up here, and if you shop around, you can find some more affordable interest rates for your small business loan.
Credit Score of 640 to 700
This is still a bit low to get loans from most banks. You will have a very wide variety of lower-cost, alternative lenders that can help you fund your business, although interest rates are still likely to be higher than for traditional loans.
Credit Score of 700 to 750
This is where you will start getting access to traditional bank loans and loans from the SBA. Most times, you will still need thorough paperwork and proof of your business’s ability to repay, but most financing options are available.
Credit Score of 750 and Above
You’re in the best position for low interest rates and beneficial repayment terms. With a credit score this high, you will have the widest access to affordable financing, including from alternative lenders.
Minimum Credit Scores Required by Type of Small Business Lender
Here’s a quick guide to the minimum credit scores that specific types of business lenders are looking for:
- A personal credit score of 680+ for a traditional bank to lend to your small business.
- A personal credit score of 680+ for getting the Small Business Administration to lend to your small business.
- A personal credit score of 630+ for many loans to purchase equipment, vehicles, and other business assets.
- A personal credit score of 600+ for getting short-term loans from specialized, alternative lenders.
For credit scores lower than 600, you will need to seek out very specialized lenders. At this level, you will probably still be able to access invoice or accounts receivable financing, or a merchant cash advance, but be aware the interest rates will be expensive.
Advice on How to Increase Access to Small Business Loans
Our advice on getting accepted for a loan at reasonable rates is:
- Apply for an EIN as soon as possible so you can start building your business credit score.
- Get your current personal credit score from a credit agency.
- Look through your credit history in detail and correct any errors.
- Use the recommended behaviors above to boost your personal and business credit scores.
- Read our guide to getting approved for a small business loan.
- Get all of your documentation and paperwork in place to make an application.
- Search our marketplace to get matched with a specialist lender who can meet your needs, even if your credit score is lower.