Securing the necessary capital is crucial for any business to thrive. To attract investors or secure a business loan, the key is to present your business as a low-risk investment. When seeking a small business loan, banks will assess whether lending money to your business is a sound investment. They evaluate various factors to determine the risk involved and then decide whether to approve your loan application.
Understanding what banks look for is essential. While each bank has its own unique criteria for loan approval, some common requirements include a good personal credit score, a minimum of two years in business, and a positive business credit profile. The longer you’ve been in business, the higher your personal credit score, and the more favorable information on your business credit report, the lower the perceived risk and the more attractive you become as an investment for the bank.
When applying for credit, be aware that some banks may accept lower personal credit scores than others. Banks can choose from three credit bureaus to obtain your credit report, each using a different formula to calculate your credit score. Therefore, you essentially have three different personal credit scores.
For example, a client recently obtained a $50,000 unsecured business line of credit after being denied by two other banks. This was achieved because her Equifax credit score was 633, while her Experian score was 685. The initial banks used the Equifax report, while we directed her to a bank that used the Experian report. Knowing your credit scores from each bureau empowers you to make informed decisions about applying for a business line of credit.