Do you need business financing fast? Are you unsure about the minimum credit score for a loan?
When it comes to a business loan credit score, most lenders prefer applicants with scores of 680 or above. With that, lenders have different minimums, and some lenders are more flexible than others. Regardless of the lender, 720 is an ideal score for a loan.
If you don’t have the best score, don’t panic. You can boost your score sooner than you think by paying bills on time, reducing debts, and checking your reports for errors.
This article will highlight the best scores needed to obtain business loan approval. Let’s dive in.
What’s a Good Credit Score Range for Loans?
In general, try to maintain a score in the 600s. Scores in the 600s are suitable to many lenders, but others prefer scores in the 700s. Refer to the following breakdown to see where your credit score fits:
- 300 to 579: Very Poor
- 580 to 669: Fair
- 670 to 739: Good
- 740 to 799: Very Good
- 880 to 850: Excellent
Some lenders will accept borrowers with a minimum score of 620, whereas others will stick to the standard 680. If you have a lower score, consider online lenders. Online lenders are usually more flexible than established lenders.
To be on the safe side, however, try to boost your score as high as possible.
How Can I Boost My Credit Score?
To obtain a business loan, you must worry about two types of credit scores: personal credit and business credit. Lenders assess personal scores based on individual worth, and they could use business credit scores to assess the worth of your business.
Business credit scores don’t have the same FICO standards. Instead, a loose collection of agencies report on businesses.
If the loan isn’t a pressing issue, take the time to boost your personal and business scores. Let’s say you want to boost your individual credit score. If you only need to raise your credit score by a few points, you can do so in a matter of weeks.
Major repairs to your credit can take months or years, depending on your financial profile. Best of all, you could boost your score as high as 100 points in a relatively short timespan.
To boost both scores, consider the following measures.
Pay all of your bills, rent, and utilities on time.
When it comes to utilities, these payments don’t usually end up on your credit report. However, you can use Experian Boost to add utility and phone payments to your report. Moreover, ensure that you’re paying off loans on time, and strive to minimize your debt load.
Business lenders see high debts as a red flag. Additionally, large debts will negatively affect your credit. If you have credit cards, keep the balances low, and pay off the balance sooner rather than later.
Additionally, ensure that you don’t have inaccuracies in your report. Credit reports contain more errors than many people realize. Therefore, check your report at least once a year to root out mistakes.
Business credit scores are based on a scale from 0 to 100. Borrowers with a score of 0 represent a high risk, whereas 100 represent a low risk.
Like your personal credit score, scorers assess your company’s ability to pay off debts and retain low balances. Additionally, making consistent payments on time will increase your score.
If you don’t have a business credit score, lenders will look at your personal score instead. To build a business score, you can deal with creditors who report business activity.
That said, some business creditors don’t report to credit bureaus. Above all, pay your creditors on time.
What’s the Best Credit Score For a Loan?
Even though you should maintain a minimum score of 680 or more, you may need a lower minimum score in other cases.
- Examples: Business lines of credit may only require a 630 score. Merchant cash advances may only require scores in the 550s.
If you have a score of less than 600, you may have a difficult time securing financing.
Overall, increase your score as much as possible to obtain a quality business loan. With a lower score, lenders may not give you as much as you were asking for.
If you expect to borrow between $50,000 to $100,000, you should have a good score in the high 600s and low 700s. If you want to get better loan terms, strive for a minimum score of 720 or greater. To get the best loan terms, try to obtain scores in the 800s if possible.
Can I Still Get a Loan If I Have a Lower Score?
Despite the lower scores, you may still qualify for financing, but there are caveats. In addition to receiving less than the requested amount, you may also have to pay collateral. Collateral entails pledged assets needed to secure the loan.
Collateral can be in the form of a house, car, boat, or stocks. Lenders could ask for collateral to offset the lower score. If you default on the loan, lenders can seize any assets that you pledge.
Boost Your Business Loan Credit Score if Necessary
You should increase your personal and business credit score to qualify for high-tier financing. A good business loan credit score is usually in the 600s or the 700s.
Anything less than 600 will lower your chances of qualification. If you have a lower score, you may have to pay a higher interest rate or pledge collateral. If you want the best deals, consider online lenders.
Want to know how to get a small business loan? Click here to learn more.