A credit score is the primary business loan requirement that every borrower has to meet. All loan lenders consider the credit score of the applicant to determine his eligibility. It is a crucial factor in the loan underwriting process. It helps in determining how credible a borrower is. And the more creditworthy the borrower, the less risk for the lender.
On the other hand, small business owners with a low credit score might have a tougher time in securing business loans, especially, the type of loan they want and at easy to meet terms and conditions. That being said, every loan lender or institution requires a minimum credit or CIBIL score to consider the applicant eligible.
With that in mind, what is the minimum credit score for a business loan? Or what the range is? Take a look further.
What is a good Credit Score to get a Business Loan?
No credit score range is in the ballpark. The lenders indeed want to see the credit score in a particular ballpark. But there are no specific credit score numbers that are hard and fast rules. Every loan application submitted to the loan lender is evaluated based on the credit score and a couple of other factors.
But if we assume that the applicant meets other credentials and exceed the lender’s other standard requirements, such as business vintage or annual revenue, then there is a minimum credit score range that the borrower has to aim to get the loan application approved.
Personal Credit Score VS Business Credit Score
Let’s now discuss the credit score for a business loan. There are two types of credit score – personal score and business score. They both are different, and a business owner generally has both.
- Personal Credit Score: The personal score is evaluated on personal credit. It involves personal loans & history, credit card usage, etc. Notably, personal credit history includes credit and payment history, credit capacity, bankruptcies, card utilization, credit inquiries, length of credit history, etc. Personal credit score ranges between 300 and 900. To qualify for a small business loan, the applicant should at least have a credit score of 600.
- Business Credit Score: Like a personal credit score, a business credit score is the measure of historical reliability and financial commitments of a business. The business credit score is calculated based on the personal score. But credit rating agencies also consider business vintage, industry risk factor, relationship with vendors, etc.
Notably, if a business owner does have a business score, his score will be taken into consideration. However, the personal score then should be at least 700. Generally, the small loan applications are considered based on the personal score over the business score. If the business owner doesn’t have a high credit score, he needs to work towards improving it first. And then apply for a loan for business.