Establishing a business and then running it smoothly can be a stressful task for entrepreneurs, especially ones who are new to the industry. They may be in need of additional funds, which can be their ticket to establishing a thriving business. Recognizing the need for additional funds may be easy, but acquiring them is a whole other matter. Anyone who has been a part of the industry can vouch that the process of getting these funds is a road that is riddled with obstacles. There’s no way the process can be called simple. There are several requirements that the business and the entrepreneur must meet in order to qualify for the loan. The worst part is that the requirements do not remain the same across the table. There are many factors that can contribute to their changing state. Depending on the loan you want to avail, the requirements will change, and you’ll have to abide by them if you wish to get the funds you need.
Loan eligibility may be determined by a number of factors, but on the top of the list is the credit score.
In the majority of cases, the lender is concerned about the credit score of the borrower. This score is a number that enables lenders to determine the capacity of the borrower to return the money. That’s the reason they become a crucial factor for the loan underwriting process. The number is all the lenders need to determine the trustworthiness of the borrower. The higher the score, the easier it becomes for borrowers to secure the funds they need for their business. On the opposite end of the spectrum, lower scores can lower your chances of acquiring a loan. These low scores certainly make it harder for an entrepreneur to borrow money and may even kill your chances of opting for certain loan types.
So if you are a businessman looking for information about credit score and what role it plays in determining your loan eligibility, here’s everything that you need to know about the process.
Credit Score Requirements
Most entrepreneurs who are new to the industry worry about this, and so this is the right time to put your doubts to rest. The first thing you need to know is that there’s technically no minimum credit score for loan eligibility. There are no set of standards that dictate the range of credit scores. Without any hard and fast rule to follow, it all depends on the discretion of the lenders. Most lenders have set a certain criterion that they follow to evaluate each case.
The rules can sometimes change with every case. The lender uses a combination of factors to either approve or deny the borrowers request. Some lenders start by viewing the credit scores. If the scores don’t meet their set standards, the lenders won’t evaluate the rest of the documents. For some lenders, however, the process is different. If the borrower meets their demands, then the lender is lenient enough to lower their set credit score range. As we’ve mentioned before, all cases are different, and the treatment each borrower gets also varies.
In order to make sure your credit scores can help get your loans approved, you need to keep an eye on them. Being an entrepreneur, you’ll need to keep both your personal and business credit scores in check. So you need to know the basics if you intend to build a strong foundation for your business.
Personal Credit Score
If you want to showcase your fiscal responsibility, your personal credit score is the best indicator. The score is probably the first factor that lenders consider when gauging your creditworthiness. If you want to know your personal credit score, you’ll need to contact one of the three major credit bureaus that do the job. There are several small companies, too, but the giants in the industry are Experian, Equifax, and TransUnion. They go through your statements and give you the score that can help you secure the much-needed funds. The credit bureaus use the most common method of evaluating credit, which they easily achieve with the help of FICO scores. With their own FICO algorithms to calculate your score, these credit bureaus can help create your credit profile. Since they use their own algorithms, it’s common for the scores to differ slightly. The different scores don’t deviate much and are rarely over the range of a 20 point difference, so there’s no need to worry. Just make sure you provide the credit bureau with your payment history, card utilization history, credit capacity, and a few other necessary documents.
The score ranges from 300 to 850. If you are an entrepreneur seeking a small business loan, then you’ll need a score of at least 550 to qualify. The requirements may differ from lender to lender so make sure you confirm beforehand.
If you are an entrepreneur who can’t get their loans approved because of low credit scores, then you need another way out. With the help of factoring companies in your area, you can acquire loans and get monetary help. Research about it and gather information to help advance your business to new heights of success.