Will A Business Loan Affect Your Credit Score?

If you’re thinking about applying for a business loan, you might be wondering if your credit score will be affected. Generally, it depends. If you fail to make repayments on your loan, you could see your credit score decline over time. However, if you consistently make your repayments on time and there are no issues financially, you could see your credit score increase.

Your credit score may affect your ability to be approved for a business loan though. When reviewing your application, a lender might take into account your personal credit file as well as your business history.

Read on below to find out more about how business loans affect credit scores.

What is a business loan?

Business loans are capital offered by lenders to businesses. A business loan is specifically intended to help you to grow your business. Like all other loans, it involves the lending of funds which you then repay back to your lender with added interest.

A business loan comes in handy if you don’t have the extra funds to build your business yourself. Business loans also come with either a fixed or variable interest rate and can be either secured or unsecured loans.

Business loans can be used for most aspects of a business. Generally, you can use it to purchase a business, improve your cash flow, expand your business, or pay off any debts. Depending on your lender, short and long term financing may also be an option for you.

Do business loans affect credit scores?

Lenders don’t just consider your business credit when checking your application. They will also look at your personal credit history.

A credit file is a personal file that contains information about any loan applications that you’ve made. Included may also be information about any loans that you currently have in your name. Also listed could be any information about any judgements against you and missed payments linked to defaults. This means that any potential lenders may be able to check your credit history.

If you have a trading history, you might find that you have a business credit file also.

Potential lenders may check it to see your business’ financial history, so they can assess a loan application. In this case, a business loan could potentially affect your personal credit score.

Generally, applying for too many business loans in a short period can also have negative effects on your credit score, as will missing payments on a loan. If you miss your loan repayments, you may see your credit score decrease over time.

However, a business loan can also help a credit score if repayments are consistently made on time. If this is the case, you may notice your credit score improve, as consistent on-time payments will be reflected in your credit history.

What kind of credit score is needed for a business loan?

Lenders generally consider a credit score of 680 or higher to be good credit. But the higher your credit score is, the more loan options will be available to you. A higher score also means that you could be eligible for a more competitive rate, or better terms on your loan depending on your lender.

However, if you have a less than ideal credit score, there are still options available to you. A private lender may be more willing to lend to someone with a lower credit score than a bank would, and may be able to work out a beneficial loan for you regardless of your credit score.

How your credit score is calculated

Your credit score is calculated based on the information available in your credit report. For example, the amount of money you’ve borrowed, the number of credit applications you’ve made and if you’ve been able to make your repayments on time will all impact what your credit score is listed as.

Your score will be reflected on a five-point scale. This helps a lender assess how much of a risk it could be to lend to you. A higher credit score may mean that you could get a better deal and save money on your loan, as you would be considered less of a risk for a lender to approve.

If your credit score is low, there are steps you can take that might help to improve it:

Limit how many applications you make for credit – The more applications that you make, the more your credit score may lower
Pay your expenses on time – Having your mortgage repayments or rent paid on time may positively impact your credit score
Pay your utility bills on time – Paying your utility bills on time will show lenders that you aren’t a risk to lend to
Pay your credit card on time each month — Paying your credit card in full, or paying more than your minimum repayment requirement may help to improve your credit score

If these things are done, you may see your credit score start to improve. You may also be more likely to be approved when you apply for a loan through a lender.

Where does Tiger Finance come in?

We have helped countless Australians with both good and bad credit ratings to be funded for their business. We understand that lending criteria from other lenders are too strict, and can stop you from achieving your goals. That is wrong, and it should not hold you back.

How we can help

Our finance specialists can help you find the right business loan for your project. Business loans are a complicated topic, but we will find a loan that makes your dream project that much easier.

If you are one of the many Australians finding getting a business loan difficult, Tiger Finance can make the process simple and pain-free. Call and talk to one of our loan specialists today for your free initial consultation.