Dubious Debt: Could Your Bad Credit Hurt Your Business in 2016?

Business.com / Funding / Last Modified: February 22, 2017

Is a black mark on your credit score keeping you from obtaining a small business loan? Learn how to get access to the funds you need today.

Defaults, bankruptcies, and poor credit scores can hurt more than just personal credit: these black marks can hurt a startup owner’s ability to secure a small business loan or lines of credit.

Up to 63 percent of small business owners attempt to secure a small business loan or line of credit, but only 27 percent are actually successful.

Even small businesses with a stellar credit rating can struggle to obtain traditional business loans, reports the Small Business Association

Have a black mark on your credit? Conventional wisdom says you may need to forget about obtaining a bank loan altogether.

Related Article: Business Credit Secrets: What You Don't Know Can Hurt You

While business credit scores and personal credit scores are separate numbers, they’re still closely intertwined, especially for small business owners. Could a bad credit score hurt your business in 2016? Here’s what you need to know.

Personal Versus Business Credit Scores: What’s the Difference?

Personal credit scores in the United States range from 300 to 850; a business credit score ranges from 0 to 100. In the United States, personal credit scores generally follow the Fair Isaac Corp.’s algorithm to calculate a credit score. Business credit scores, however, are not standardized and can vary from bureau to bureau, reports NerdWallet. A business credit report typically includes a credit score and credit summary, key facts about the business, corporate registration and contact information, summaries of collections and payments, along with any bankruptcy filings, judgments or tax lien filings, reports Experian.

While you have a right to a free personal credit report from each of the three major credit bureaus (Equifax, Experian and TransUnion), you have to pay money to see your company’s credit report and score. In fact, anyone who is willing to pay for your business credit score can find it since this information is considered to be public. Finally, even though business and personal credit scores are separate, banks and loan providers often look at both when determining whether or not they’ll loan your company money.

What Happens if My Credit Is Bad?

A poor credit score won’t help your cause when it comes to obtaining a small business loan, especially in today’s economy. If your credit score is holding you back from obtaining startup capital, you may need to consider alternative business funding options or using collateral to secure a small business loan

At least half of all small business owners receive financing help from friends and relatives, who may be more willing to forgive past credit mistakes because of their personal relationship with you. Microlenders and web-based lenders are another option for quick startup loan capital. While this loan capital is typically small ($5,000 to $25,000) it can provide the money you need in a pinch.

Even better, if you make timely payments, you’ll improve your credit score, which can help you score a bigger small business loan from a bank down the line. The Association for Enterprise Opportunity can help you find micro business lending options in your community.

Doing business across the pond? A strong business credit score is just as important for obtaining business loans. In the UK, however, there is no one has a single credit rating nor are there universal “blacklists”. Each lender scores applicants differently and secretly. This means two things: rejection can be frustrating because you won’t know why specifically.

However, since lenders use different credit scoring approaches, a rejection from one lender does not necessarily mean a rejection from all. Just like in the US, some lenders specialize in bad or adverse credit lending, even for customers with a history of missed or late payments. 

Related Article: Why Smart Entrepreneurs Separate Personal From Business Credit

Bottom Line

Whether you need funds to ramp up production, move into a larger retail space, or hire additional staff, small business loans can feel like the most critical element to your business’s long-term success. Getting turned down for a loan can feel crushing. Don’t despair: whether you need money in the United States or the UK, there are loan opportunities for individuals with poor credit. In the UK, consider non-High Street lenders who are willing to provide a no-obligation quote for bad credit mortgages.

In the US, your best option may be family and friends, microloans, or small business grants. No matter which loan you ultimately choose, commit to paying on time every month. Doing so will help repair your credit and get you on the path to a better personal credit score and a better business credit score.

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