What Credit Score Do I Need For A Business Loan? (2024)

Your credit score plays a major role in your ability to qualify for any type of financing, including a small business loan. It also helps determine your interest rates, with strong-credit borrowers typically being offered the best rates.

The credit score needed for a business loan varies by lender, but good or excellent credit will help you access the most affordable loan offers. If your credit is weaker, you may still be able to access a loan, but you might have to apply with an alternative lender and could end up with a higher cost of borrowing.

What Credit Score Is Needed for a Business Loan?

There’s no standard credit score requirement for a business loan. Rather, the requirements will vary depending on the lender and type of loan. Some lenders offer business loans for bad credit, but many of the best business loans will have higher credit requirements.

Lenders typically look at your personal credit score when determining your creditworthiness and assessing your risk as a borrower. If you have a business credit score, lenders may consider that as well in your application.

Personal Credit Score

Small business lenders nearly always consider your personal credit score when reviewing your application for a small business loan. In most cases, lenders will use your FICO score to evaluate your creditworthiness, which ranges from 300 to 850.

Here’s how that range breaks down into categories, from poor to exceptional:

• Poor. 300 to 579
• Fair. 580 to 669
• Good. 670 to 739
• Very good. 740 to 799
• Exceptional. 800 to 850

You’ll generally need a fair score of 600 or higher to qualify for a small business loan. However, some lenders may approve a loan if your score is as low as 500.

Understanding what influences your credit score can help you improve it. If you’re looking to apply for a business loan, consider improving your credit score so you can qualify for the best possible rates.

Paying your bills on time, maintaining a mix of credit types, avoiding excessive hard inquiries and keeping your credit utilization down can all help your credit. By contrast, late payments, high debt and credit utilization and a short credit history can all contribute to a low FICO score.

Business Credit Score

A business credit score is not always required to get a small business loan, but some lenders will consider it. One common scoring service is the FICO Small Business Scoring Service (SBSS), the same company that provides personal credit scores.

FICO SBSS scores range from 0 to 300, with 300 indicating the highest level of creditworthiness. Your score is based on various factors, including your company’s payment history, assets, revenue and time in business.

Your SBSS score can play a role in your eligibility for an SBA loan. Small-amount SBA 7(a) loans, for example, require a minimum SBSS of 155.

Keep in mind, SBSS isn’t the only business score out there. Some other agencies that generate business credit scores or reports are Dun & Bradstreet, Equifax and Experian. Lenders may also consider these scores when evaluating your application.

Why Is Credit Score Important?

Lenders review your credit score to assess your risk as a borrower. A good credit score suggests that you have a history of repaying your loans on time and would manage new debt well. A poor credit score suggests to lenders that you may have missed payments or made other financial missteps in the past, and signals you may do that again.

Ultimately, lenders are trying to reduce the risk that you’ll default on your loan. They could still approve you if you don’t have the best credit, but they might charge higher rates and fees to offset their risk of lending to you.

On the other hand, lenders tend to offer the best rates and terms to borrowers with good credit, as they consider them more likely to pay back their loan in full and on time.

How Does a Business Loan Affect Your Credit Score

A business loan can affect your credit score in a few ways. When you first apply for the loan, you can see your score go down by about five points due to the lender’s hard inquiry to assess your credit.

However, your score should bounce back within a few months if you make on-time payments on your loan. Lenders typically report your payments to one or more of the major credit bureaus, Equifax, Experian and TransUnion.

Over the course of your loan, if you manage it well and make payments on time, your credit score can improve. Yet, if you make late payments or miss payments, that’ll be reflected in your credit score, causing it to drop.

How To Improve Your Credit Score

Improving your personal credit score can boost your chances of qualifying for a small business loan and grant you access to better rates and terms. Here are some ways to improve your score:

• Make on time payments. Your payment history makes up 35% of your credit score. Paying your loans and credit card bills on time can improve your credit score.
• Reduce your credit utilization. Lowering your credit utilization rate, or the amount of credit you’re using compared to what’s available to you, can help improve your credit score. Aim to keep your rate below 30%.
• Limit opening accounts. Avoid opening more credit lines than you need to protect your credit. Pre-qualifying during the loan shopping process can help prevent hard credit inquiries from appearing on your credit report.
• A mix of credit. Repaying different types of debt, such as a credit card and an installment loan, can improve your credit and show a lender that you can manage multiple kinds of credit.
• Avoid closing old accounts. Closing an old credit card in good standing, for instance, could shorten your credit history and reduce your credit score.
• Dispute errors on your credit report. Review a copy of your credit report from AnnualCreditReport.com to see if it has any mistakes that are harming your score. If there are mistakes, you can file an official dispute with the three major credit bureaus to have them corrected.
• Register for a Dun & Bradstreet number. The SBA recommends registering for a Dun & Bradstreet number, or DUNS number, to establish a business credit score. You’ll need a unique nine-digit DUN number for each physical location of your business.