Why the answer depends on the product
Unsecured products lean harder on credit because there's nothing to repossess if payments stop. Secured products, where equipment, real estate or receivables back the loan, can put more weight on the asset.
Invoice factoring sits at the far end: it depends mostly on your customers' credit, not yours. DSCR real estate loans weigh the property's rent alongside your credit. Conventional bank and SBA loans tend to look at the whole picture most closely.
What lenders weigh besides the score
Cash flow: recent bank statements and deposits, and whether the new payment fits.
Time in business: an operating history gives lenders something to measure.
Collateral: equipment, property or receivables that secure the loan.
Existing debt: other loans, and especially daily or weekly advance debits.
Recent events: bankruptcies, tax liens, judgments, collections and late payments, and how recent they are.
Business credit: many lenders also check business credit files, which are separate from your personal score.
Personal vs. business credit
For most small businesses, lenders look at the owner's personal credit, because the owner usually signs a personal guarantee. Business credit files, kept by commercial reporting agencies, track how the company itself pays vendors and lenders. Building business credit takes time, so for newer companies the personal score usually carries more weight.
How to strengthen your position
Check your personal credit reports and dispute errors. Pay down revolving balances if you can. Keep business and personal money in separate accounts. Resolve tax liens or old judgments, or be ready to explain them. Avoid stacking cash advances, which can hurt your chances more than a modest score.
If your score is lower than you'd like, a secured product or a larger down payment can often get you further than waiting.
Recent events weigh more than old ones
Lenders read a credit report as a story. A late payment from years ago usually matters less than one from last month. A bankruptcy, tax lien or judgment may narrow options for a while, but the time since it happened, whether it was resolved, and how you've paid since all count. A short written explanation of anything significant often helps an underwriter understand the file.
How much credit tends to matter, by product
| Product | Weight on credit | What else carries weight |
|---|---|---|
| SBA and bank loans | High | Financials, collateral, history |
| Working capital | Moderate | Bank deposits, time in business |
| Equipment financing | Moderate | The equipment, down payment |
| DSCR real estate | Moderate | Rent, down payment, reserves |
| Invoice factoring | Lower | Your customers' payment history |
Common questions
Can I get a business loan with bad credit?
Often, yes, especially with collateral, steady revenue or receivables. Expect fewer options and higher cost, and be wary of anyone who promises approval regardless of credit.
Do lenders check personal or business credit?
Usually both. For most small businesses the owner's personal credit carries significant weight because owners typically guarantee the loan.
Will checking my options lower my score?
A soft inquiry does not affect your score. A hard inquiry from a full application can have a small effect. Ask before you apply which kind of check will be used.
Should I wait to apply until my score improves?
Not always. If your score is close to where you want it, a few months of on-time payments and lower balances can help. If you need capital now, a secured product or a larger down payment may work without waiting.
Related
We're commercial lending advisors based in Lafayette, Louisiana. We look at your business the way a lender will, using what you share plus a free Capital Position Report built from public records, then match you to the best-fit programs across our lender network. We arrange financing for businesses nationwide, except in California.
Pre-qualifying takes about two minutes, has no credit impact and no obligation. Lenders pay our fee when a loan funds; here's exactly how we get paid.
General education, not legal or tax advice. Requirements, terms and timing vary by lender and program. Capco Capital is a commercial lending advisory firm operated by Capco Capital LLC. We arrange financing through third-party lenders as a loan broker and are compensated by the lender when a loan funds. We are not a lender and are not affiliated with the U.S. Small Business Administration.
