When Do Banks Stop Looking at Your Personal Credit for Business Loans?

Now that your business is established, you’re probably wondering why banks are still looking at your personal credit when you look for business loans. After all, the inquiries are bringing down your credit score, and you probably don’t want to personally guarantee debts when you don’t need to. Here’s what the banks are looking for before they’ll rely solely on your business credit.

When You’ve Established Business Credit History (Not Just Good Personal Credit)

Whether you have a sole proprietorship under your own name or a large corporation, your business has its own credit report and score. The general concepts, like paying on time, are the same as your personal credit, but the systems are entirely separate.

If you’ve started your business with personal loans or credit cards, you have no business credit regardless of how much you’ve borrowed and how diligently you’ve paid it back. Your business credit history only includes business loans and credit cards designated for business use.

As with personal loans, banks will be more cautious lending to a business without established business credit. Just like personal credit, you’ll need to start with a small business loan or credit card and work your way up through responsible use.

When Your Sales Can Support the Loan

As with personal loans, banks want to see business income that can support the payments. If you’re in startup mode and are taking a loss, your income is negative, and the bank won’t grant your business a loan unless you back it with your personal resources.

Once you have even a few months of steady sales, the doors start to open. Your first available options will likely be working capital loans or merchant cash advances that are repaid directly from your payment processor. As your income grows, unsecured loans may become available.

When the Bank Doesn’t Think It Needs Personal Collateral

Your business assets can also help you obtain a business loan without a personal guarantee or a personal credit check. Even if you own a relatively new business, you can probably obtain a secured loan, such as for a vehicle or a commercial mortgage, if you can show stable income.

For unsecured loans, the bank will be looking for stability. This includes having sufficient assets, such as real estate, machinery or inventory, or having a longer income history.

To learn more about what lending options you might have available based on your business credit, income and assets, talk to Merchant Capital Source today.

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