Did you know that you are likely to have a business credit score if you have a business? Learn everything you need to know about business credit scores, including how they impact your lending eligibility and personal credit score. We’ll also review a few lending alternatives if you have minimal business credit.
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What Is a Commercial Business Credit Score?
A commercial business credit score is similar to a personal credit score, except it applies solely to your business’s creditworthiness. A business credit score lets creditors and investors know how financially secure your business is and how likely it is that you can repay any existing debt you may have. If you’re considering opening a business in the near future, you may find that your business credit score matters.
Business credit scores differ in a few ways from personal scores. For example, a personal credit score ranges between 300 and 850, with 850 being the highest, and a business credit score is between 0 and 100.
How Does a Business Credit Score Affect My Personal Credit Score?
The great thing about business credit is that it doesn’t negatively affect your personal credit score. However, this also means that even if you have a good credit score in your personal life, it may not help you qualify for business financing, making it difficult to qualify for a business loan.
While your business credit score shouldn’t affect your personal score, it can factor into your debt availability and utilization ratios. Ultimately, making timely payments on your business debt is as important as it is with your personal debt.
What Affects My Business Credit Score?
Many of the same factors that affect your personal credit score also determine your business score, including payment history, credit availability, and income. Try to avoid maxing out your business credit, and be sure to make all payments on time. How frequently you request credit can also affect your business score, just as it does with your personal score.
Why Do I Need a Business Credit Score?
A good business credit score can help you obtain funding for your business. If you maintain a positive cash flow and good credit score, you may be able to qualify for better financing rates through a commercial loan. Your business credit score is also tied to your Employee Identification Number (EIN), which is a number that you’ll also use to file your taxes. Hiding your credit score behind an EIN can sometimes help businesses maintain anonymity.
You may also need a business credit score to secure a good insurance rate. A better credit rating can lead to lower insurance policy costs. You may also secure better vendor or supplier rates with a good business credit score. Once you have an established business credit score, you may also qualify for preapproved credit cards that can further help fund your business. However, it’s important to remember that just because you were preapproved doesn’t mean you should agree to the loan.
Are There Any Non-Credit-Based Commercial Loans Available?
Opening or renovating a business may require financing. However, if you have less-than-perfect personal credit or little to no business credit, you may find it difficult to qualify for traditional lending. There are alternative loan options available to business owners, with hard money loans being one of the most popular options.
The asset secures Hard money loans, meaning credit score isn’t an important eligibility factor.
A debt service coverage ratio (DSCR) loan may also be an option for business owners with limited credit. Your potential income from the asset determines your DSCR loan eligibility rather than your credit score.
Do Hard Money Lenders Report Loans to Credit Bureaus?
Many potential business owners wonder, “Do hard money lenders report loans to credit bureaus?” While it depends, most hard money lenders don’t report to the credit bureaus. This is because most hard money lenders don’t factor in credit scores when determining loan eligibility. In fact, hard money loans are a popular choice for businesses with minimal to no credit. However, this doesn’t mean no public record is available when you take out a hard money loan.
Other lenders who complete a search on your business will likely be able to tell that you already have a hard money loan out. DSCR lenders will also conduct a thorough background check, including a review of any hard money loans. Regardless of your loan type, being transparent with your lender is important. Failing to disclose any active loans or debt when applying for a new loan could lead to a denied application. Not being fully honest could also be considered a misrepresentation of your business’s finances.
Once you open and establish a business, creditors may assign a credit score to that business. Lenders, vendors, and suppliers may use this score to determine financing eligibility. Business financing may be available to business owners with little to no credit through hard money or DSCR loans.