It’s unlikely that you will qualify for a small business loan with a credit score less than 700. A score of 720 seems to be the magic number. Above which, your likelihood increases dramatically, and below which, it decreases dramatically. If you score is under 700, you probably should focus on fixing your score if you can. If not, then forget commercial banks, and be ready to pay high levels of interest.
But, I’m trying to qualify for a small business loan, so why does my personal credit matter? It matters because it is how the bank will determine your ability to pay, and your credit worthiness. Usually, small business loans do not have collateral to offset risk. Therefore, your personal credit is their best measure of your reliability, and the level of risk you represent.
It can be called different things, but it is calculated the same way. If you want to know more, Contact Us!
Most banks look for a DSR of 1.2 to 1.25. So how much should you target borrowing?
Let’s look at an example: Business A has a net operating income of $100,000 and is carrying $15,000 in current debts in credit cards and other loans, including personal loans. Why personal? It’s the same reason as above. Without collateral or a long business credit history (next topic), your ability to pay will include your personal debt.
Since this is how many banks assess your eligibility, it is best to drive down personal debt to the lowest level possible.
Most banks won’t touch you unless you have 2 years in business, or significant personal collateral to cover the loan. Knowing that most businesses need the money upfront to start their business, this requirement often is the most painful. When qualifying for a small business loan, there are several other non-traditional crowd-sourcing platforms, which have lower barriers to entry, such as KIVA©, Flipcause©, and Lendio© that offer low principle, but low cost loans. They can help you build up your business credit, which can help offset a less than pristine personal score. Friends and family can help as well. You just need to draft the right paperwork, so that the small business loan can be considered official.
If you are looking to see if you qualify for a small business loan in the UK, the post "10 best loans in the UK" is a excellent resource.
ProStrategix can help guide you through qualifying for a small business loan. We can help you understand the most common question small business owners ask, “How much can I qualify for a small business loan?” Navigating the small business loan process is challenging but not impossible. Being prepared ahead of time with solid financials, a clear vision and definition of success, and a solid business plan that sets the tone, and will greatly help your chances of qualifying for a small business loan. We’d love to help, by simply meeting you and your business where you’re at in your journey today and help you to propel your vision forward.
Brian Cairns, CEO of Prostrategix Consulting. Over 25 years of business experience as a corporate executive, entrepreneur, and small business owner. For more information, please visit my LinkedIn profile