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How Your Credit Score Impacts Business Financing Options

December 2, 2022  - Tips for Small Business
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Whenever business owners are applying for financing, their credit scores are examined. This may include your personal credit score as well as your business credit score. But how exactly do your personal and business credit scores impact your business financing options? Let’s find out.

Why Is My Credit Score Important for Business Financing?

Whether you’re starting a business or preparing for a recession, there are many instances where you’ll require additional funds. Financing can be a way to expand your inventory, bridge your payroll or upgrade your technology, among many other things.

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A lender uses your credit score to determine how big of a risk you are and whether you can pay the money back on a regular schedule. 

Lenders will see you as a bigger risk if you have a low credit score. They could offer financing with a high-interest rate or exclude you completely from securing a small business loan. If you have a high credit score, you can expect lower interest rates and a wider range of financing options.

Besides lenders, vendors and partners may use your credit score to decide whether to work with you or issue a line of credit. When it comes to cash flow for business operations, your credit score will be a decisive factor.

Personal Credit Score vs Business Credit Score

Personal Credit Score

A personal credit score is tied to your history with money. While there are many scoring systems, the Fair Isaac Corporation (FICO) score is most commonly used. Experian, TransUnion and Equifax are the three major credit bureaus that measure your personal credit score. 

Credit reporting data varies by agency due to the different scoring algorithms they use. There are also customized FICO scoring methods for different types of lenders, such as small business loan lenders and home mortgage lenders. That means your FICO score will slightly fluctuate depending on the agency and the type of data used. 

image with icons depicting each of the factors that impact your credit rating

While there’s no universal method for calculating your credit score, the following factors are typically taken into account:

  • Credit history: This is the amount of time since you’ve opened and used your credit accounts.
  • Payment history: Your repayment history is examined, including how often payments were made on time, the amount and frequency of late payments, and any foreclosures, liens or bankruptcies.
  • Credit owed: The amount you still owe is evaluated, in addition to how much credit is available to you.
  • Credit mix: The number of credit accounts you have will be looked at. This includes loans, credit cards and retail accounts.

Business Credit Score

Once you start a business, you also have a business credit score. Like your personal credit score, it examines your financial health and history, but this time with your business. It’s used to illustrate a business’s financial strength and dependability, as well as its likelihood of making outstanding payments on time.

The major bureaus that calculate your business credit score are Experian, Equifax and Dun & Bradstreet. As with a personal credit history, there’s no universal scoring method. Each bureau has its own set of criteria for assigning a score and will gather data and information about your business's financial history. 

The scores your business receives will determine your eligibility for future financing options. Here are some general criteria that affect your business credit score:

  • Annual revenue: The amount of money your business brings in each year will impact your score.
  • Loan history and debts: Personal or business, your loan history will be examined. This includes the number of loans, loan amounts, the length of the loans and the payment history. Any outstanding debts and how much you still owe will also contribute to your score.
  • Business history: How long you’ve been in business will impact your score.
  • Assets: Any assets, such as real estate, technology or intellectual property can be factored into your credit score.

What Numerical Scale Is Used for Credit Scores?

Personal Credit Scoring

Scores can range from 300 to 850. While your scores will differ depending on the credit bureau, they’ll usually be similar to each other. Here’s a general guide of what each numerical scale says about your financial reliability and health, and how it impacts your business financing options:

odometers showing the scale of credit scores from very poor to excellent
  • 800-850: Anything within this range is considered exceptional and allows business owners to choose from multiple loan options.
  • 740-799: This is also a very good credit score and will have you seen as low-risk. That means you’ll still have plenty of loan choices and can pick the best one for your business.
  • 670-739: While not considered excellent, this is still a good score that can provide you with a decent amount of financing options.
  • 550-669: This credit score is considered fair, which means you’re a moderate-risk borrower. While you’ll still have financing options available to you, there may not be as many choices. Scores around 650 and lower may exclude you from certain business loans depending on the lender. However, solid business credentials and the history of your business may open you up to different forms of financing, such as short-term loans and equipment financing.
  • 550 or lower: This is considered a high-risk score by lenders and will severely limit your financing options. However, it does not eliminate them completely, and will most likely come with high-interest rates or other conditions.

Business Credit Scoring

The numerical scale for business scores ranges from zero to 100. Typically, many lenders want a business score of at least 75. Scores in the higher range will show you pay your business bills on time, have a longer-established business and handle your finances responsibly.


Discover Top Financing Options for Your Business

No matter your credit score, you should know all the options available to you. At Ascentium Capital, we specialize in helping small and mid-sized business owners secure the financing they need.

To learn about our flexible financing options and get a free quote, send us a message today.

The mention of or links to third-party information, services, products, or providers does not imply endorsement or support by Ascentium Capital. Individual research should be done before use of any product, process or service mentioned.
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