Are you applying for a business loan? Commercial lenders may look at both your business and personal credit scores before they approve your application. If you have poor personal credit and you’re wondering if it will affect your approval or the terms of your commercial loan, the answer is yes, it can. However, negative items on your personal credit history don’t mean you should give up on applying for financing.

To learn more about how personal credit can affect the process of applying for a business loan, keep reading.

Why Is Credit So Important for Loan Approval?

Whether you’re applying for a personal or business loan, lenders are going to take a detailed look at your credit history to determine the risk involved in providing you with financing. Your credit history shows lenders how well you manage your debts and whether you make payments on time, and it also reports how much money you have borrowed in the past and whether you have ever declared bankruptcy. These factors can tell a lender a lot about the risk they’ll take on if they offer you a loan.

RELATED ARTICLE: How Do Commercial Financing Partners Evaluate Loan Applications?

Will Lenders Always Consider My Personal Credit for A Business Loan?

Most lenders will at least look at your personal credit history when determining your eligibility for a business loan. However, some lenders will put less weight in your personal score than others. And if you already have an established history of good business credit, lenders may put even less weight on a lower personal credit score.

In general, you can expect your personal credit to matter more for a business loan when any (or all) of the following are true:

1. You’re Applying for Financing With a Bank or Other Traditional Lender

Banks have strict requirements for lending and don’t have the luxury of being very flexible. On the other hand, independent financing partners like Team Financial Group can provide financing to business owners in a much wider range of circumstances than a bank can.

2. Your Company Is a Start-Up or a Very Small Business

If lenders don’t have enough information to determine your creditworthiness from your business score, they will weigh your personal score more heavily. And if you own a sole proprietorship or a small business with only a few employees, it may be hard for a traditional lender to see the distinction between your business’ credit history and your personal credit.

3. Your Personal Credit Is Considerably Low

A few older negative items on your personal credit report shouldn’t make it difficult to receive a business loan, especially if your business’ credit history is strong. However, the more negative items there are on your personal credit history, the more a lender is going to take notice and factor it into their risk assessment.

What Effects Will My Personal Credit Have on My Business?

Your credit history—both personal and business—is only one factor lenders use to evaluate your application, not the be-all and end-all of the financing process. However, credit history is an important factor, and it can have a variety of effects on your ability to acquire the financing you need. Your business and personal credit histories can affect:

What if I Have a Valid Reason for Having Poor Personal Credit?

Independent financing partners have much more flexibility than banks, and they don’t have to treat an applicant’s history as nothing more than a credit score number. For example, if you have poor personal credit due to a single devastating event that does not reflect on your ability to manage your personal funds, an independent financing partner shouldn’t treat this circumstance the same as if you have a long and consistent history of making late payments or defaulting on debts.

RELATED BLOG ARTICLE: 4 Tips to Improve Your Business Credit Score (and Why You Need To)

Team Financial Group: Fast, Flexible Commercial Equipment Financing

There are many benefits to working with an independent lender like Team Financial Group rather than a traditional bank. Besides offering faster financing approvals and more personalized service, Team Financial Group can also provide more flexibility in terms of financing terms and payment options, even if you have issues with your personal credit score.

At Team Financial Group, we will work with you to determine your best financing option and suggest ways you can improve your financing terms if you have a credit score that’s less than ideal. Get the financing process started today by calling 616-735-2393 or completing our easy online application.

The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.

Many businesses need financing to get started or purchase assets for an expansion. If you’re looking for flexible options and fast approval times, you might apply for financing with an independently owned commercial financing partner like Team Financial Group. But what happens to your application after you submit it? What affects whether a financing request gets approved or denied?

In this article, we’ll answer these questions and more by explaining the five Cs of Credit that financing partners like Team Financial Group use to evaluate your application.

Before we get started, however, it’s important to know that there are no “perfect” applications for financing in the real world. Even if you feel like your business could be stronger in one of the areas described below, it doesn’t mean you won’t be able to secure the financing you need, so don’t worry. If you have questions, just contact Team Financial Group and let us do the rest. Our mission is helping all types of businesses get the financing they need.

The 5 Cs of Credit

Financing partners use five primary factors to evaluate whether they can approve a financing request from a potential client. These factors, known as the five Cs of credit, consider information about both the borrower and the financing option for which they’re applying. For commercial financing, the financing partner will analyze the finances and history of both your company and you personally.

The five Cs of credit are:

One of the most important factors companies consider when evaluating a financing request is your credit history, which is sometimes referred to as your character. (Having a negative credit history doesn’t mean you’re a bad person, so “financial reputation” might be a better term, but “character” is easier to remember.) Your credit history is a record of your debts and payments that financing companies use to determine the risk involved in providing financing.
Your credit history provides a financing partner with information such as:

As previously mentioned, for commercial financing, the financing partner will look at both your personal credit history and your company’s credit history.

After examining your credit history and depending on the size of the request, the financing partner will look at your business’ financial capacity to make payments. To evaluate this capacity, the financing company will look at your debt service coverage (DSC) ratio.
Your DSC ratio allows the financing company to understand your company’s ability to pay your existing debt obligations with your current cash flow. The higher your DSC ratio, the stronger you appear as a borrower.

Your financing partner may also consider whether you’ve put your own capital into the proposed business investment or whether you’re relying solely on financing. However, at Team Financial Group, we gladly offer 100 percent financing for commercial equipment, so not having available capital should never prevent you from getting the financing you need.

RELATED ARTICLE: What Do I Need to Prepare Before Applying for A Loan?

Collateral refers to assets or property that a lender can repossess if the borrower defaults on a loan. The idea behind collateral is that the lender can sell the repossessed property and recoup some of their losses.

Conditions is a catch-all term that refers to details about the financing option itself or even outside factors that could affect the financing or your company. Examples of relevant information might include:

These are just a few examples; many other factors can influence whether a financing partner can supply the amount of financing you require with the terms you prefer.

Choose Team Financial Group for Your Commercial Equipment Financing Needs

At Team Financial Group, we take a personal approach to every financing request. Our experts can walk you through the five Cs of credit as they apply to your unique business situation and help you understand how to secure the financing you need.

If you have any questions about our financing approval process or which financing option is right for your business, fill out our online contact form or give us a call at 616-735-2393.

The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.

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