What’s the Required Credit Score For a Business Loan?

Your personal credit score can make or break your chances of qualifying for the right business loan. All traditional lenders restrict funding access to those with scores at or above a given minimum. Fintech lenders tend to have more diverse business loan qualifications, with options for all credit profiles.

How can you know if you have the required credit score for a business loan? Take a look at your financial health from a lender’s perspective, and see what you can do to reduce risk and appear more creditworthy.

Why Do You Need a Good Credit Score for a Business Loan?

When considering loan applications, lenders look at both business and personal credit scores.

The shorter your business credit history, the more weight your personal score carries. To a lender, the number is an indicator of how well you manage debt and financial obligations overall. A higher score shows you’re reliable, and can be trusted to handle loan debt without defaulting.

Lenders can use credit ratings to evaluate debt management habits because of how credit bureaus calculate personal scores. According to myFICO, scores are calculated based on five criteria, with varying degrees of importance:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • Credit mix: 10%
  • New credit: 10%

Together, these elements tell lenders:

  • How long you’ve been using your credit accounts
  • How often you make payments on time 
  • Whether you’re prone to overspending. 

If you frequently utilize a large percentage of your available credit or frequently open new accounts to move debt around, then it’s a red flag. Lenders may reject your business loan application.

What’s a Good Credit Score for a Business Loan?

The credit score required for a business loan depends on the lender and the type of loan for which you apply. Lenders set their own minimums, in addition to other requirements. Traditional lenders spend a lot of time going over the financial details of your business before granting approval, while fintech lenders have a more streamlined process.

Minimums can vary based on goals, financials, industry type, and countless other details. In general, though, this is what you can expect when comparing the minimum credit scores for business loans:

  • Banks and credit unions: At least 680; some will consider scores as low as 650, but 700 is the preferred minimum
  • SBA lenders: 620 to 680; requirements vary by loan program
  • Online lenders: Few or no credit requirements; there are financing options available for all credit profiles

You can try applying with a lower credit rating if your company has an otherwise strong financial status and your business plan is solid. However, there’s no guarantee your application will be approved at a traditional lender.

If you have a low credit score, then you may have other financial options—aside from the one you initially applied for—readily available.

Some businesses that can’t qualify for traditional loans may be able to get funding through microloan programs. These loans have lower credit requirements and are available from the SBA, certain non-profit organizations and peer-to-peer lending networks. Microloans can cover minor expenses, but may not offer enough capital if your business is rapidly growing. 

Improve Your Financial Profile to Meet Small Business Loan Requirements

Although it’s a significant factor, credit isn’t the only thing lenders consider when reviewing your business loan application. Your eligibility is also affected by:

  • How long you’ve been in business
  • How much revenue you generate
  • Cash flow
  • Availability and value of collateral
  • The ratio of net operating income to debt obligations

You can improve your chances of qualifying by asking, “What do banks look for?” when applying for a business loan and making improvements in as many areas as possible. 

In some cases, simply operating your business for a few more months can make it easier to qualify. In a few month’s time, you may find sales surge. 

Secured funding, such as equipment loans and accounts receivable financing, can also be more accessible because collateralized loans pose a lower risk to lenders.

If credit score is your only barrier, make a plan to start improving it. Start by getting copies of your credit report from all three major bureaus and checking them for errors. This is a critical step; an FTC study of 1,001 people found 26% had credit report errors. These errors could be all that holds you back from qualifying for funding. Disputing these errors can clean up your report and improve your score.

You’ll also want to:

  • Remove unnecessary expenses
  • Pay down existing debt
  • Avoid opening unnecessary accounts
  • Create and adhere to a schedule for on-time payments

Once your credit score is on track, it’s important to maintain smart debt management habits. You may find it helpful to work with an accountant to establish a long-term plan for financial health.

Access Business Financing Now – Regardless of Credit Score

What if you need cash for your business right away, but you don’t have the required credit score for a business loan? 

National Business Capital & Services has a range of financing options for all credit profiles. From startup funding to working capital loans, the business financing advisors at National can help your company find the ideal solution.

Through National’s global marketplace of over 75 lenders, we can find the best financing option for your business—regardless of credit barriers. Funding from National could be all it takes to solve a challenge or pursue a huge new opportunity.

Apply now to learn your options!

National Business Capital & Services is the #1 FinTech marketplace offering small business financing and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

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About the Author, Matt Carrigan
Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!