How to Leverage Your Personal Credit to Score a Business Loan

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Last Updated: March 29th, 2021

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According to Forbes.com, personal credit scores are “algorithms that attempt to predict whether or not you will repay your obligations in the future.” These algorithms consider numerous factors, such as the promptness of your bill payments and whether you pay your monthly credit card balance in full (opposed to the minimum).

Also, it’s worth pointing out that your personal score is separate from your business credit score. While the two share some common DNA, your business score is based on elements specifically related to the running of your company, such as your number of trade experiences, payment history, and outstanding balances.

The value of your credit score

Your personal credit score can be worth its weight in gold. For example, a strong score helps you qualify for better rates on a vehicle or home loan, which can save you thousands of dollars. And, most importantly for entrepreneurs, it can open the door for the capital you need to reach your business goals.

The good news is that credit scores are rising nationwide. Research shows the average FICO Score is now above 700. Surprisingly enough, there are more Americans right now with scores above 800 than there are below 600.

Wherever you fall within that point range, you can put your personal credit score to work to secure financing for your business. As with vehicle and home loans, the higher your score, the more favorable the terms will be. And some loan products on the market are quite lenient when it comes to your score, making them ideal for those who are new in the business or have a less-than-stellar financial history.

Here are a few examples of loans where your personal score can help you with qualification, even if your score isn't high enough to impress anyone other than your mother:

Merchant cash advances

When speed is of the essence, this type of financing can be hard to beat. That’s because a merchant cash advance allows you to borrow against your business’s future earnings, meaning you won’t need to deal with mountains of paperwork detailing your financial past.

Merchant cash advances can range from $5,000 to $200,000, and you can often get that money in about 24 hours. Because approvals are based more on the performance of your business than your personal financial history, people with low personal credit scores can often qualify as long as you’ve got at least $2,500 in monthly credit card transactions.

ACH loans

Similar to a merchant cash advance, an ACH loan is predicated more on your business’s finances than your own credit score. Lenders will focus on the average daily balance in your business account, then approve you accordingly.

ACH loans fund much quicker than traditional loans, though the amounts are usually on the smaller side and the interest rate can be rather high. It’s worth noting that with this type of financing, the payments will be withdrawn directly from your checking account.

Business lines of credit

As a flexible form of financing, a business line of credit often jives perfectly with entrepreneurs who are launching a business. Similar to a credit card, a line of credit gives access to cash that you can use at your discretion. When you need money, you simply borrow (and then repay) the specific amount you need.

The size of your line of credit can range from $1,000 to $500,000. And it can be used for everything from buying bulldozers to paying your employees. When it comes to qualifying, as long as you bring in at least $50,000 in annual revenue and have a credit score of 560 or above, you could be a solid candidate.

Bolstering your credit score

If your score isn’t quite where you’d like it to be and you’re interested in accessing a broader array of loan products, don’t worry. Credit scores aren’t a caste system where you’re locked into your current position. With discipline and strategy, you can improve your score and begin tapping into the benefits that come with it.

For starters, never be passive when it comes to your credit score. Monitor it regularly and look for actionable ways to improve. You also might find errors that make you look riskier to lenders, resulting in less favorable terms and higher interest rates. Research shows as many as one in five Americans have such errors on their report.

You may also want to consider partnering with a credit repair expert who specializes in repairing credit. They can quickly spot errors, identify areas for improvement, and provide multiple strategies for elevating your score. By focusing your efforts on credit repair, you could save thousands of dollars with lower interest rates, as well as having more doors swing open for you when seeking capital.

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." 

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