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How To Get A Small-Business Loan
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Article 3: Know Your Credit History
Personal as well as business credit histories are crucial when applying for a small-business loan.
Although your loan is for your business, the lender views you not merely as a business entity, but also as an individual.
Pivotal in assessing personal credit history is the FICO score, a formula that determines the likelihood credit users will pay their bills.
The system is widely used by lenders to evaluate loan applicants by condensing credit history to a single number. FICO scores range from about 375 to 900, with 640 generally the point below which banks show concern.
Credit bureaus don’t reveal how FICO scores are computed, but the calculation assigns points for factors such as:
Late payments How long credit has been established The amount of credit used versus the amount available Length of time at a residence Employment history Negative information such as bankruptcies, charge-offs and collections
TIP: Increase your FICO score by paying bills on time, not applying too frequently for credit, reducing credit card debt and obtaining additional credit.
Personal credit and financial information is always required, even if the business is incorporated. Lenders want to know the personal credit worthiness of anyone with more than a 20-percent interest in the company.
“Whether it’s a corporation or LLC (limited liability corporation), we care about the whole picture,” says Comerica Bank Vice President Nancy Russell.
The personal history of business owners is an indicator of character and financial management skill. Often when lending to startup businesses, there is little else to go on.
“Because who they are as people is so strong, we’re willing to help them with that startup,” Russell says.
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