Business owners quickly realize that personal credit has a direct impact on their business loans. It doesn’t matter how they set up the legal status of their businesses. If they are the owner, they are responsible for the loans.
Connections to Personal Credit History
Stated by a credit repair Houston specialist, when business owners apply for loans, they have to be sure their personal credit score is in tip-top condition. If they have bad credit, they will struggle to get loans for their businesses. Despite needing to have good personal credit to get a business loan, the two credit scores are actually managed separately.
Personal credit scores include several factors. Most importantly, creditors look for a few key points before they award you with a loan. They will first look to see if you have a history of making payments on time. Then, they will look for points whether you have the financial capability to make payments and eventually pay off a loan. Finally, they will look to see if you have some support to help you in times of financial trouble.
What Lenders Do Not Want to See
These issues are present in your personal credit score. If you have historically paid your debts, you should not have too much difficulty in acquiring a business loan. The majority of your credit score is based on your payment history as well. If you have negative items like settlements, charge offs, liens, or bankruptcy, you will struggle to find anyone who will loan you money for your business.
If your negative history is old, you might still be able to get a loan. But, you will still be considered a risk, so the lender might give you a higher interest rate as a way to recoup their money faster. The higher interest rate will take away more of your operating costs, so you might want to reconsider before jumping on the opportunity.
The Importance of Credit Scores
One of the first things that any lender will do is to look at your personal credit score before awarding a business loan. The three major credit bureaus do have slightly different recording methods, but the values they share are relatively the same.
If you have a credit score above 800, you will have no problem getting whatever loan you want. But, remember, if you have any issues making a payment, your credit score could drop dramatically.
If your credit score ranges between 740 and 799, lenders will not hesitate to give you a loan. Missing payments will lower your personal credit score, but not to the extreme of the group that began with an 800 or better.
Where lenders begin to hesitate is around 739 and under. Scores in the 700s are still considered good but they are far from the “Very Good” and “Excellent” ratings of the two ranges above it. Once the score falls below 700, then lenders begin to play with interest rates and might say no more often.
To be able to get a loan for your business, it is vital that you take good care of your personal credit. Pay your loans on time, and do not take on more credit than you can manage.
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