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The Impact of Business Credit Scores on Loan Approvals: What Lenders Look For

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Financing can make or break any business. It could help your company succeed or keep it from reaching its full potential.

July 13, 2023
Author: NCH

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You may have started your business with your own money, but the time will come when you’ll need more capital to seize new opportunities. When this happens, your chances of success will heavily depend on your business’s loan eligibility. 

A business’s loan eligibility can be affected by a lot of factors. However, out of all of them, only one holds the most importance; your business credit score. 

If you want to learn how your business credit score could affect your loan approval, you’ve come to the right place. In this blog, we’ll discuss what lenders look for in credit scores and the factors that can affect them. 

Why A Good Business Credit Score Matters

Whenever you apply for a loan or a credit card, lenders will assess whether or not you’re creditworthy through your business credit score. It provides them with a recalculated way of determining if an applicant is high or low risk.

If your business has a high score, it indicates that you’re financially stable and have a good track record of paying off your debts. Having a high business score means that you’re a low-risk borrower. 

On the other hand, having a low score means you’re a high-risk borrower. This indicates that you’ve missed payments or have high debt levels. Not only does it make it harder for you to borrow money, but it also prevents you from getting better interest rates and more flexible payment terms. 

What Factors Affect Business Credit Scores?

Since three different reporting agencies calculate business credit scores, the factors that affect them vary. Here are some of the most important elements you need to remember:

Payment History

Late payments, judgments, and collections are vital to your business credit score. These things could easily drag your credit scores down. To make matters worse, it could take you years to recover your original score. 

Credit Usage

Reporting agencies assess how you use your credit through your credit utilization rate. It measures the ratio between the total amount of money you’ve borrowed and the total credit limit of your account. 

Experian says a good credit utilization rate is 30% or less. The lower your rate is, the better. 

Age of Credit

Your business activities can also affect your credit score. If your age of credit, or the average time your credit lines have been open, is low, it indicates a lot of inactivity. Lenders often see this inactivity as a sign that your business could be in the high-risk category.  

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Credit Mix

These days, it’s not enough to have one credit line. A healthy mix of credit accounts like vendor credit, credit cards, and loans showcases your excellent credit management skills. 

What A Good Business Credit Score Looks Like

Dun & Bradstreet says a good business credit score is 80 or above. However, score requirements could change depending on the type of lender and loan you’re applying for. Here’s an example:

Score Requirements by Lender Type

Before you start borrowing money, you must understand the minimum score requirements of different lenders.

  • Banks & Credit Union: A score of 680 or above is the best when applying for loans granted by banks and credit unions. If you have a 740 score or higher, you’ll have better chances of getting their best terms. 
  • SBA Lenders: If you plan on getting a loan from a Small Business Administration (SBA) accredited lender, you need a score of at least 600 to qualify. 
  • Online Lenders: Online lenders are more lenient to their applicants than traditional lenders. Some accept applicants with scores around 500, especially if the business shows good financial health.

Score Requirements By Loan Type

You can also increase your approval chances by learning each loan type’s score requirements. 

  • Term Loans: Banks and credit unions expect a score of 670 or above when it comes to term loans. Meanwhile, online lenders only require a score of 580. 
  • Line of Credit: Similar to term loans, you need at least a 670 score or higher to get a line of credit. 
  • Commercial Real Estate Loan: If you want to get a loan for commercial real estate, you’ll need a really strong credit score. It would be best if you have at least 680 or higher. 
  • Equipment Loans: Equipment loans are typically secured by making a purchase first. Because of this, you can get approved with a relatively lower score of 550. 
  • Merchant Cash Advance: This type of loan is typically offered to borrowers with a low score of 500. 
  • SBA Loan: If you want an SBA-accredited loan, your business credit score should land between 620 and 680. 

How to Boost Your Business Credit Score

If your business credit score doesn’t meet the minimum requirements we’ve mentioned, it would be best to work on improving it first. Here’s what you can do to increase your business credit score:

  • Pay your bill early. 
  • Lower your credit use.
  • Dispute any errors you see on your credit reports
  • Don’t close old credit accounts. 
  • Regularly monitor your credit report. 

There’s no denying that learning how to boost credit scores can be daunting, especially if you don’t understand how it works. So, if you’re struggling with increasing your rating, NCH is here to help. 

Improve Your Credit Eligibility Today

NCH is one of Nevada’s leading business formation service providers. Our team of business specialists will help you get a better understanding of your reports. Once we assess your credit reports, we’ll work with you to develop solutions that best fit your needs and goals.

Don’t let the complexities of business credit stop your business from flourishing. Contact us today and let us help you boost your score. 

To learn more about our business credit-building services, visit our website here or call us at 1-800-508-1729.

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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