So your business plan is complete and you’re all set to go to the bank for a small business loan but have you checked you personal credit score? You may ask yourself, why does my personal credit matter if I’m getting a small “business” loan? Well I hate to break it to you, but your credit score may have more to do with you getting approved for a small business loan than your business plan. Why? Because statistically speaking, how you handle your personal credit will be how you’ll handle your business credit, or so the banker thinks.
So, what can you do if your credit score is below what is acceptable to the bank? First pull a copy of your credit report. You can get a free copy at www.annualcreditreport.com . Check for inaccuracies because estimates are as high as 1 in 5 credit bureau reports contain inaccurate information. * If you find errors take the necessary steps to correct them. If the report is accurate and contains negative information, then take the necessary steps to rectify the delinquent accounts or judgments etc. You can get help in putting together a plan from your local credit counseling service such as Apprisen.
I’m often asked, “what is a good credit score?” That’s a slippery slope for a lender because in some ways it does depend on what is affecting the score. You can use the chart below as a rough estimate for where you stand in regard to a credit score compared to your peers.
The FICO credit score range is defined as: *
Very good (740-799)
The bottom line is make sure that your business plan is tight, but make sure that your personal credit is equally tight. There may be places to get a business loan with less than perfect credit but as in all things, you will pay dearly for it. At the end of the day don’t you deserve to get the best rates and terms available? Then take a moment to inquire about your own personal credit. You may be glad that you did.
* 2013 Federal Trade Commission Study
* U.S. News and World Report