When searching for the right loan for your business, it’s important to understand how you’re presenting yourself to prospective lenders, namely in the form of your credit score. Find out more about the qualification requirements for business loans relating to your credit score in Savvy's informative guide.
What credit score will I need when applying for a business loan?
In many cases, lenders won’t have a minimum credit score set in stone when it comes to assessing applications. These will be considered on a case-by-case basis, analysing the current state of their finances first and foremost, assessing the revenue the business generates to determine how much it’s capable of borrowing. The circumstances surrounding their good or bad credit score and whether there’s been any improvement in recent months or years will also be looked at.
However, some will require businesses to have a score of at least 500 to proceed with the application. Restrictions like these are put in place by lenders who deem borrowers with low credit scores to be too great a risk to lend to. There are a variety of factors which can affect your business’ credit score. Data obtained from previous lenders, your bank, utility services and more are all included in the calculation. Some of the factors which may impact your score include:
- The length of time you’ve been operating (the longer, the better)
- The frequency of past credit enquiries (such as loan applications)
- Prior defaults, bankruptcies or court judgments
At Savvy, we’re partnered with a range of flexible business lenders who can tailor their products to your needs. Not all of them will enforce a 500-credit score minimum, opening the door for small businesses who’ve struggled with their credit in the past and are on the way up to access the funding they need and improve their score in the process.
What other eligibility criteria will I need to meet?
Aside from sometimes having to meet credit score requirements, the other eligibility points you should ensure you meet include:
Personal credit history
In some cases, particularly if your business is relatively new, lenders will consider your personal credit score and history in conjunction with that of your business. They’ll want to see that you’ve demonstrated responsibility in the past of repaying debts promptly and in full, rather than having issues in doing so. Most lenders will also require applicants to have a clean history when it comes to bankruptcy.
Business trading requirements
In addition to personal qualification points, your business will likely need to have been trading for at least six months prior to your application. In some cases, lenders will enforce a minimum of at least 12 months’ worth of trading, so it’s important to check with your lender to ensure you meet their requirements.
Minimum monthly or annual turnover
Lenders will always implement a required minimum monthly revenue figure as part of their loan criteria. The lowest required turnover you’ll find on a business loan is $5,000. However, this will vary between lenders, with some asking for an annual turnover of up to $1 million. As such, it’s important to find a lender whose criteria you meet.
Top tips for improving your business credit score
The simplest and most effective way to improve your business’ credit rating is to continue paying bills on time, whether that be for rent, utilities, supplies or other loan debts. In doing so, you’ll help your credit score grow over time and improve your chances of approval for future finance.
If your business has credit cards which it uses, you can benefit from reducing their credit limits to cut down on your overall available credit. This will help your credit situation, particularly if you have cards which you don’t use and are actively hindering your score with their presence.
It’s important to keep an eye on your report regularly to ensure there aren’t any errors recorded which may affect your score in the long run. This allows you to nip them in the bud, as well as track the positive credit reporting stemming from paying your bills and potential suppliers.
There’s nothing worse than building up a strong history with a supplier or third party, only for your positive record to not be marked on your file. It’s useful for businesses, particularly in their early days, to seek out suppliers who record positive behaviour to help you build your profile.