

It probably doesn’t take long for any business owner who applies for a business loan to discover that their personal credit impacts their ability to qualify, but whenever I talk to business owners it seems that there are some misconceptions and questions many small business owners have regarding what the impact is, what is included in their profile, and what they can do to improve the odds of loan approval and the options available when they’re looking for a small business loan.
Small business owners in the United States really have two profiles, their personal credit profile, and their business profile. Both profiles play a role in business loan approval, but today we’re going to talk about personal credit score. In a companion piece to this, we’ll talk about the misconceptions many small business owners regarding their business credit profile. Although your business credit profile and your personal credit score are very different and even express different information about you and your business, they both impact your ability to qualify for loan and the options available to your business.
For most small business owners, their personal credit score will likely always be a part of the equation, so it’s important to understand what it’s telling your creditors, and how directly impact your ability to qualify for a loan.
They might not ask the questions in this way, but your personal credit score gives them insight into what you’ve done in the past, so they can make assumptions about what you are likely to do in the future.
Although each of the major personal credit bureaus (Experian, Equifax, and TransUnion are the three biggest) vary slightly in how they score your credit profile, the values are fairly universal. Nevertheless, don’t be surprised to see slight differences in how they score your personal credit. Different lenders will weigh your personal credit score when considering your business for a small business loan differently, but the following rules of thumb typically apply:
Depending upon the particular business need you’re trying to fill, your personal credit score, and the amount of capital you need to meet your use case, any one of the above options could be a good fit. For example, many businesses with an excellent credit profile will still choose an online loan with a higher interest rate because they can have access to capital in a matter of a day or two vs. several weeks or the shorter term will reduce the total dollar cost (or interest amount paid) of the loan.
While I agree that your personal credit score is really a reflection of how you manage your personal credit responsibilities rather than your business credit obligations, small business lenders consider it an important part of how they evaluate your business creditworthiness—so it’s very important to take steps to make sure your personal credit score is as strong as possible.
Click HERE if you’d like to learn more about the relationship between personal and business credit and what you can start doing today to improve your credit profile. Next week we’ll dive into your business credit profile and discuss how it can impact your ability to qualify for a small business loan, the information the business credit bureaus collect about your business, and the steps you need to take to make your business credit profile the best reflection of your business's creditworthiness.
Learn how OnDeck can help your small business.
Copyright © 2023 SCORE Association, SCORE.org
Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.