What’s the Minimum Credit Score For a Small Business Loan?

Your personal credit score can make or break your chances of qualifying for the right business loan. Traditional lenders restrict funding access to those with scores at or above a given minimum, while fintech lenders generally offer options to all credit profiles. But what’s the required minimum credit score for a small business loan? While credit score is far from the only requirement when you apply for a loan—and you can qualify with a score on the lower side—it’s important to be aware of your score and what that means to lenders.

Understanding Credit Score

Before discussing the minimum credit score for a small business loan, it is important to have a clear understanding of what credit score is, and what are some of the factors that impact it. A person’s credit score is a culmination of their credit history, which describes how that person has handled credit in the past. Each action, whether positive or negative, factors into your credit score, ranging from 300 to 850. A wide variety of things can negatively affect your credit score, including:

• Credit inquiries
• Late payments
• Bankruptcies
• Defaulting on loans
• Having high balances on credit cards
• High credit utilization
• Closing old accounts

A bankruptcy will lower your credit score dramatically for years, while a credit inquiry only affects your score in the short term.  The best way to ensure you have strong credit is to pay your liabilities in full every time you make a payment, limit the number of accounts you open, and ensure you’re staying under your credit utilization limit.

What Is the Minimum Credit Score For a Small Business Loan by Lender Type?

The minimum credit score for a small business loan depends on the lender and the type of loan for which you apply.  Lenders set their own minimums in addition to other requirements. Traditional lenders explore all the financial details of your business before granting approval, while fintech lenders have a more streamlined process. Minimums can vary based on goals, financials, industry type, the requested loan amount, and countless other details. In general, though, this is what you can expect when comparing the minimum credit scores for business loans:

• Banks and credit unions: At least 680; some will consider scores as low as 650, but 700 is the preferred minimum
• SBA lenders: 620 to 680; requirements vary by loan program
• Online lenders: Few or no credit requirements; there are financing options available for all credit profiles

You can try applying with a lower credit rating if your company has an otherwise strong financial status and your business plan is solid. However, there’s no guarantee your application will be approved by a traditional lender. If you have a low credit score, then you may have other financial options—aside from the one you initially applied for—readily available. Some businesses that can’t qualify for traditional loans may be able to get funding through microloan programs.  These loans have lower FICO score requirements and are available from the SBA, certain non-profit organizations, and peer-to-peer lending networks. Microloans can cover minor expenses but may not offer enough capital if your business is rapidly growing. Because fintech lenders focus more on your potential and opportunity, many don’t require a minimum credit score for a small business loan. Instead, your business has the opportunity to qualify based on your potential to take things to the next level.

What Is The Minimum Credit Score for a Small Business Loan at a Bank?

Because bank loans tend to offer lower interest rates, they’re often the most desirable type of business loan. However, the minimum credit score for a small business loan at a bank is much higher than other lenders on the market. To keep risk low, banks hold business owners to high standards. Generally, they’ll only consider businesses with a credit score of, at minimum, 650. However, this is the lowest possible option—most will look for a higher score before entertaining the idea of lending.

What Is The Importance of Credit Scores in Small Business Financing? 

Lenders use credit scores to determine the risk involved in financing a borrower. If they have a strong history with a proven track record of responsible repayment, they’re likely to be approved, whereas someone with a spotty credit history may face some hurdles. To lenders, credit scores show:

• How experienced a borrower is with credit services
• How a borrower has managed their credit in the past
• A borrower’s likelihood of repaying the requested financing

Credit scores used to be the main factor in determining financing approvals, but non-bank lenders have changed the game.  Their focus on profitability and other factors has made credit scores less important than ever before, which has allowed more businesses than ever to access the capital they need to grow.  However, it is still recommended to aim for more than the minimum credit score for a small business loan in order to get better terms and rates.

Why Do Lenders Look for a Good Credit Score?

When considering loan applications, lenders look at both personal and business credit scores. The shorter your business credit history, the more weight your personal score carries. To a lender, the number is an indicator of how well you manage debt and financial obligations overall. A higher score shows you’re reliable and can be trusted to handle loan debt without defaulting. Lenders can use credit ratings to evaluate debt management habits because of how credit bureaus calculate personal scores. According to myFICO, scores are calculated based on five criteria, with varying degrees of importance:

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• Credit mix: 10%
• New credit: 10%

Together, these elements tell lenders:

• How long you’ve been using your credit accounts
• How often you make payments on time
• Whether you’re prone to overspending.

If you frequently utilize a large percentage of your available credit or frequently open new accounts to move debt around, then it’s a red flag. Lenders may reject your business loan application. Lenders also take your credit score into account when you apply for personal loans. Like credit cards, personal loans are often easier to qualify for but don’t provide enough cash. For this reason, it is important to ensure that you are working towards improving your credit score, and that you have at least the minimum credit score for a small business loan. 

Can You Qualify for Small Business Loans Without the Required Credit Score?

Even if you don’t meet the minimum credit score for a small business loan listed at a bank, you’re not out of options. Many lenders will consider lending to your business with a lower score, provided that you meet other criteria. FinTech marketplaces like National Business Capital hold your small business to different standards. Because many small business owners have credit challenges while growing, they understand that it’s not an accurate way to assess your potential to grow in the future. Instead of having a minimum credit score for a small business loan, fintech lenders focus on other factors:

• Annual revenue: You can normally find a viable small business loan option with at least $500K in annual sales, or ~$42K per month
• Time in business: You may not find options if you just opened up, but with at least 1 year in business, you can find options

Rather than focusing on where your business has been, this method takes into account where it’s going.

Improve Your Financial Profile to Meet Small Business Loan Requirements

Although it’s a significant factor (for some options), credit isn’t the only thing lenders consider when reviewing your business loan application. In addition to having a minimum credit score for a small business loan, your eligibility is also affected by:

• How long you’ve been in business
• How much revenue you generate
• Cash flow
• Availability and value of collateral (like real estate)
• The ratio of net operating income to debt obligations

In some cases, simply operating your business for a few more months can make it easier to qualify. In a few months’ time, you may find that sales surge. Secured funding, such as equipment loans and accounts receivable financing, can also be more accessible because collateralized loans pose a lower risk to lenders.

Tips to Improve Your Credit Score

If credit score is your only barrier, make a plan to start improving it. Start by getting copies of your credit report from all three major bureaus and checking them for errors. This is a critical step; an FTC study of 1,001 people found 26% had credit report errors.  These errors could be all that hold you back from qualifying for funding. Disputing these errors can clean up your report and improve your score. You’ll also want to:

• Remove unnecessary expenses
• Pay down existing debt
• Avoid opening unnecessary accounts
• Create and adhere to a schedule for on-time payments

Once your credit score is on track, it’s important to maintain smart debt management habits. You may find it helpful to work with an accountant to establish a long-term plan for financial health.

Access Business Financing Now – No Minimum Credit Score Required

What if you need cash for your business right away, but you don’t have the minimum credit score for a small business loan? National Business Capital has a range of financing options for all credit profiles. From equipment financing to working capital loans, our Business Finance Advisors can help your company find the ideal solution. Through our exclusive marketplace of top U.S. B2B lenders, we can find the best financing option for your business—regardless of credit barriers. Funding from National Business Capital could be all it takes to solve a challenge or pursue a huge new opportunity. Apply now to learn your options!