Business loan eligibility is a complex matter. Every loan will come with different circumstances, and the lenders themselves vary in what they require.
Almost all lenders, however, will insist upon running a credit check upon any business applying for finance. This article will explore the issue of business credit scores and how they implicate your chances of being accepted for commercial finance.
Is there a Minimum Credit Score for Business Loan Eligibility?
While there is no industry-wide minimum in place, most lenders will want to lend to businesses of 50+, at a bare minimum, with an ideal of 80+.
Of course, this varies considerably and where significant collateral is available, some lenders are prepared to be extremely flexible since security is in place.
With that in mind, consider the following a guideline for best practice. If you’re a business with a score below these levels, please contact us anyhow. With access to the whole of the market lenders, Business Expert has contacts with lenders who may be prepared to approve business finance where others won’t.
The Basics of Business Credit Scoring
As with a personal credit check, your business credit score is a metric lenders can use to establish your reliability. Have you always paid your bills on time; do you have a lot of credit facilities in place; are there creditors chasing you for particular bills?
The main business credit score checkers are Experian, Dun and Bradstreet and Equifax. All of these offer a credit score from between 1 and 100.
In addition to your trading history, your company size will affect your score, as well as the risk factors associated with the industry your work in.
- Credit Score of 90-100 = very low risk
- Credit Score of 80-90 = low risk
- Credit Score of 50-80 = below average risk
Does Personal Credit Score Matter for a Business Loan Application?
While there are exceptions, most lenders do run personal credit checks of the individuals who are applying for business finance on behalf of their companies. In some cases, all of the company directors will have their credit scores checked.
Why is this so important?
Because an individual’s personal financial track record is seen as indicative of an overall approach to money. It is, therefore a helpful metric in establishing how reliable you may be as a borrower.
For new business owners, this is especially important. Since your startup won’t have had time to establish its own credit history, all that potential lenders have to go on when measuring risk is your personal credit history.
Can I Still Get a Business Loan if My Credit is Bad?
For businesses without a good track record of credit, a range of finance options exist.
Some lenders specialise in what is called ‘bad credit loans, though you should expect higher interest rates.
Options are wider still if the borrower has an asset which can stand as security, despite poor credit because the lenders can then relax, knowing their risk is hugely reduced.
A business with a healthy turnover can seek a ‘turnover loan’ even without security.
Invoice-based finance is also possible because you can use your company invoices, for example, as collateral for the loan. This is the basis of factoring.
