Zinkevych/Getty Images: Illustration by Issiah Davis/Bankrate
Key takeaways
- The best terms on small business loans are generally reserved for borrowers with strong credit scores
- Personal credit scores range from 300 to 850, with higher scores indicating greater likelihood of timely payments on a loan
- Business credit scores can range from 0 to 300 and are calculated based on the company’s payment history, age, size, debt usage and industry
- Business lenders may use both your personal and business credit scores when evaluating you for a small business loan
When you apply for a business loan, creditors will assess a few key factors to determine if you’re eligible for funding. Your credit score is one of these factors. It helps the lender assess the likelihood of you defaulting on the loan and plays a large role in determining your interest rate.
There’s no industry-wide credit score requirement for small business loans. Still, a higher credit score of 670 or above generally means you’ll be eligible for funding with more attractive terms. And while it’s possible to get a business loan with a credit score as low as 500, a lower credit score could make it more challenging to qualify for a business loan. You’ll also likely receive less favorable interest rates and loan terms if approved.
What personal credit score do you need for a small business loan?
Many lenders will look at your personal credit to determine your eligibility for a business loan. This is especially true for sole proprietors or new businesses that haven’t established business credit.
Your FICO score, the most prevalent amongst consumer lenders, indicates how likely you are to make timely payments on a loan. It ranges from 300 to 850, with scores of 670 or higher indicating good credit. Most lenders will approve you with a personal credit score of 670 or higher. Others will accept fair credit scores in the low 600s, while others will go as low as 500 though options for the lowest scores are rare.
Below are the FICO score ranges, though individual lenders may define them differently. The higher your credit score is, the more likely you will get approved with a lender and receive the best interest rates and terms.
- Exceptional: 800 to 850
- Very good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
FICO scores are calculated based on five categories. The first two categories carry the most weight in determining your credit score:
- Payment history: 35 percent
- Amounts owed: 30 percent
- Length of credit history: 15 percent
- Credit mix: 10 percent
- New credit: 10 percent
As you can see, payment history and amounts owed are the most important factors, making up 65 percent of how your score will be determined. That’s why it’s important to pay your bills on time and keep your debt low compared to your available credit.
What business credit score do you need for a small business loan?
Some lenders will also examine your business credit score when you apply for a business loan. Score ranges vary by credit reporting agency. Most credit reporting agencies score your business between 0 to 100. You’ll see a 0 to 300 if the score is obtained from the FICO Small Business Scoring Service — an important score to know if you’re pursuing an SBA loan.
The exact score you need will vary based on the credit reporting agency. The highest scores within that scoring model will indicate that you’re a low risk for a business loan, but lenders may not approve you if you’re in a high-risk category. The scoring models are as follows:
Experian
| Business credit score | Risk level |
| 76-100 | Low |
| 51-75 | Low to medium |
| 26-50 | Medium |
| 11-25 | Medium to high |
| 1-10 | High |
Equifax
The range for this credit rating agency is between 101 and 992 for businesses. You’ll want your score to fall somewhere in the mid- to upper range in order to be considered for a business loan.
Dun & Bradstreet
| Business credit score | Risk level |
| 80-100 | Low |
| 50-79 | Medium |
| 0-49 | High |
FICO Small Business Scoring Service
The FICO SBSS can go from 0 to 300, but you’ll need a score of at least 140 to qualify for an SBA 7(a) loan.
How business credit scores are calculated
Business credit scores are derived from your company’s payment history. Some business credit scoring models also consider your company’s age, size, debt usage and industry in which it operates.
Building business credit can be a great way to qualify for larger loans and distance your own finances from your business’s. The three primary business credit reporting agencies are Dun & Bradstreet, Equifax and Experian. You can retrieve the scores for your company by visiting their websites.
Minimum credit score by lender type
Each lender has its own minimum credit score requirements. But here are some general guidelines to keep in mind as you explore lenders offering funding opportunities:
| Banks and credit unions | A credit score of 680 or higher is ideal for a bank or credit union business loan. If you can reach a score of 740 or higher, you’ll likely get approved for the best terms the lender offers |
| SBA lenders | Aim for a credit score in the mid-600s to qualify for an SBA term loan |
| Online lenders | You won’t need perfect credit to qualify for a business loan from an alternative lender. Some accept scores in the 500s, especially if your business shows other signs of financial health. But expect steep borrowing costs if you have poor or fair credit |
Minimum credit score by small business loan type
Once you’re familiar with the minimum credit scores lenders expect, dig a bit deeper to learn what’s acceptable by business loan type. Below is a list of what most lenders require based on personal credit:
| Term loan | While banks and credit unions typically require a score of 670 or above, online lenders may only require a score of 500 |
| Line of credit | Similar to term loans, you’ll need 670 or higher when applying at a bank but may only need a score of 580 or higher when applying with an online lender |
| Commercial real estate loans | You’ll need a strong credit score — preferably 680 or higher — to secure a commercial real estate loan |
| Equipment loan | Since equipment loans are secured by the equipment you purchase, you could get approved with a minimum credit score of 600 |
| Merchant cash advance | This type of bad credit loan is accessible to credit-challenged borrowers with a credit score in the mid-500s |
| SBA loan | Lenders offering SBA loans require credit scores between 620 and 680 |
Why lenders care about your credit score for business loans
A higher credit score reassures the lender that you don’t pose a significant credit risk and that you will, in good faith, pay back the loan. But if you have fair or bad credit, lenders think you’re more likely to default on a loan compared to borrowers with good credit. So, the lender may charge you higher rates to offset that risk.
Bankrate tip
How to raise your credit score
If your credit score isn’t up to par, consider improving it before applying for a loan. A high credit rating could open the door to better funding opportunities with more competitive terms and lower borrowing costs.
Here are some tips to help boost your credit score:
- Pay your bills on time
- Get current on any past-due accounts.
- Lower your credit utilization ratio: Ask for credit limit increases and try only using 30 percent or less of your total available credit
- Dispute credit report errors (if needed)
- Don’t close old credit accounts
- Only apply for new credit as needed
- Regularly monitor your credit reports
The bottom line
There’s no magic credit score that guarantees your approval for a small business loan. That said, a higher credit score can boost your approval odds if you meet the lender’s other guidelines.
Before you apply, reach out to the lenders you’re considering to learn more about their lending criteria and minimum credit requirements. Knowing their requirements will help you decide whether it’s worth your time to apply. Also, ask if they evaluate business credit scores.
Frequently asked questions
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You may still qualify for a loan if you cannot meet the lender’s minimum credit score requirement. The lender may consider other compensating factors to approve your application. For example, if your company’s been in business for several years and operated profitably, you may be eligible for funding with a low credit score.
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Yes, getting a business loan with a 600 credit score is possible. Traditional bank loans and SBA loans aren’t ideal with this credit score. Still, you could be eligible for other forms of funding, like a business term loan or line of credit, through an online lender.
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Getting a business loan with a 500 credit score can be challenging, but you’re not completely out of luck. Consider an alternative lender with lenient guidelines to assist with your funding needs. A merchant cash advance or invoice financing could also be ideal with a lower credit score.
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