This post was originally published on February 3, 2020. It has been updated to include even more information about 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.
The Minimum Credit Score You Need 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 at 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 have credit score requirements. Instead, your business has the opportunity to qualify based on your potential to take things to the next level.
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 business loan at a 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.
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.
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 lenders like National 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 $120K in annual sales, or $10K per month
- Time in business: You may not find options if you just opened up, but with at least 6 months 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. 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 month’s time, you may find 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.
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 holds 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 – Regardless of Credit Score
What if you need cash for your business right away, but you don’t have the minimum required 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, the business financing advisors at National can help your company find the ideal solution.
Through National’s global marketplace of over 75 lenders, we can find the best financing option for your business—regardless of credit barriers. Funding from National could be all it takes to solve a challenge or pursue a huge new opportunity.
Apply now to learn your options!