The most important thing to think about when getting a small business loan from a lender is your personal credit. Few small businesses have a long enough track record to have a long credit history. Even those that do, if you or one of your partners own a material part of the business (usually about 20% or more), their personal credit can affect your chances of getting a small business loan.
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Getting a small business loan from a commercial bank will usually require a personal credit score of over 700 for all the principal owners, partners, or shareholders. At ProStrategix, we’ve seen this be a big problem for a client trying to get a loan. They’re often surprised by how important personal credit is.
Why is personal credit such an important factor, even if the company has a good track record? It’s all about risk. When getting a small business loan, banks worry about how a principal will react when challenged by personal debt. Will his or her behavior affect the business?
What can you do to raise your score quickly before getting a small business loan? According to Experian:
- Pay Your Bills on Time.
- Get Credit for Making Utility and Cell Phone Payments on Time.
- Pay off Debt and Keep Balances Low on Credit Cards and Other Revolving Credit.
- Apply for and Open New Credit Accounts Only as Needed.
- Don’t Close Unused Credit Cards.
By improving the credit score of your principals, you will be able to take the pain out of getting a small business loan.
There are other challenges, when applying for a small business loan, but they are much more easily solved than poor personal credit. If you have questions about whether your business is ready to apply or need assistance with an application, ProStrategix can help.