Your Credit Scores and Emergency Funding

The 2020/2021 pandemic has wrecked the small business landscape, leaving many enterprises struggling to rebuild. Fortunately, the federal government stepped in to help entrepreneurs weather the financial storm.

Paycheck Protection Program (PPP) loans, the Economic Injury Disaster Loan (EIDL) Program and others are available for qualified small business owners, although the deadlines to apply are approaching. There is an application process for emergency funding and along with that comes questions about credit score protection. Here’s information you need to know.

See if you pre-qualify!

What emergency funding is available in 2021?

There are two programs that small business owners should explore for financial relief in 2021.

EIDL

The SBA's Economic Injury Disaster Loan (EIDL) Program provides small businesses (500 employees or less) and nonprofits with low-interest loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing due to COVID-19.

PPP

The Paycheck Protection Program (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on payroll.

Borrowers may be eligible for PPP loan forgiveness. SBA is currently offering PPP loans until May 31, 2021 or until the funds designated for the program run out. The SBA announced on May 5th that the PPP program had exhausted the funds except for $8 Billion earmarked for Community Development Financial Institutions (CDFI) and $6 Billion to fund SBA hold codes yet to be resolved.

RRF

The Restaurant Revitalization Fund (RRF) provides funding to help restaurants and other eligible businesses keep their doors open. This program will provide restaurants with funding equal to their pandemic-related revenue loss up to $10 million per business and no more than $5 million per physical location. Recipients are not required to repay the funding as long as funds are used for eligible uses no later than March 11, 2023.

SVOG

The Shuttered Venue Operators Grant (SVOG) program was established by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, and amended by the American Rescue Plan Act. The program includes over $16 billion in grants to shuttered venues, to be administered by SBA’s Office of Disaster Assistance. Eligible applicants may qualify for grants equal to 45% of their gross earned revenue, with the maximum amount available for a single grant award of $10 million. $2 billion is reserved for eligible applications with up to 50 full-time employees.

Debt relief for existing SBA borrowers

SBA offers debt relief to existing SBA loan borrowers whose businesses have been impacted by COVID-19. As a part of the CARES Act, SBA is authorized to pay six months of principal, interest, and any associated fees that borrowers owe for all 7(a), 504, and Microloans reported in regular servicing status (excluding Paycheck Protection Program loans). This debt relief to borrowers was originally dependent on the loan being fully disbursed prior to September 27, 2020, and does not apply to loans made under the Economic Injury Disaster Loan program.

SBA PPP loans do not require a credit check

Since the Paycheck Protection Program is intended to get emergency business funding into the hands of as many of America’s struggling business owners as quickly as possible, the SBA has apparently temporarily suspended the requirement of a credit check for this type of loan.

Typically, the SBA 7(a) loan program, which technically the PPP falls under, does require an examination of your credit before you can be approved. However, there does appear to be an exception in this particular case.

EIDL loans do require a credit check

Because EIDL is a government loan, federal regulations require applicants to meet minimum credit standards to qualify.

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The Restaurant Revitalization fund program does not require a credit check

This program does not require a particular credit score. Find comprehensive information on the Small Business Administration (SBA) website.

SVOG loans do not require a credit check

Although this new type of emergency funding for shuttered venues does have requirements, a specific credit score is not needed. SVOG grant applicants must meet the following eligibility requirements.

  • Must have been in operation on Feb 29, 2020.
  • Must not have an application pending for a PPP loan. If the entity has applied for either a first- or second-draw PPP loan on or after Dec. 27, 2020, they are ineligible to apply for an SVOG until their PPP loan application is denied. Entities may not apply for a PPP loan and an SVOG at the same time. However, an entity that applied for and received a PPP loan during the first iteration of PPP last year is eligible to apply for an SVOG.
  • Must have defined performance and audience spaces with fixed seating (which is defined as seating permanently fixed to the floor or ground.) The Economic Aid Act does not allow for temporary, removable, modular, convertible, or other non-fixed seating arrangements. This means that mobile entities such as a circus, fair, or business that provides talent for events such as weddings are not eligible for a Shuttered Venue grant if they do not meet the performance space and fixed seating requirements.
  • Outdoor venues can apply for an SVOG if they are otherwise eligible under the rules for their type of entity. For example, a drive-in movie theater without fixed seating does not meet the requirement that a motion picture theater operator must have at least one auditorium with a motion picture screen and fixed audience seating.

Why are good credit scores important for a business owner?

Although business owners are facing severe revenue drops, it’s vitally important to protect your credit scores as strong scores can help you qualify for low cost funding down the road. Poor credit scores can affect vendor relations, your supply chain, and more.

Hard vs. soft credit inquires

There are two ways your credit scores can be pulled – by a “hard” inquiry or a “soft” inquiry. These are also known as “credit pulls”.

A hard inquiry occurs when you apply for any type of credit like a car loan, a mortgage, a credit card or a small business loan. Investopedia reports that the reason a hard inquiry may lower an individual's credit score is because someone who has recently applied for new credit is seen as a potentially riskier borrower.

A hard pull might lower your credit score for six months or so by about 5 points. But what if you want to shop around for a specific type of loan? If you apply for the same type of loan (mortgage, car loan, etc.) from multiple creditors within 30 days, FICO will generally treat all of those applications as a single inquiry.

Also important to note is that hard pulls stay on your record. This means creditors down the line will be able to see any loans you applied for on your credit report, even if you didn’t actually take the loan or the credit card. The bottom line? Don’t apply for credit unless you plan to use it.

A credit report check that does not affect an individual's credit score is a soft inquiry. This occurs when you check your own credit report, when you give a potential employer permission to check your credit, when financial institutions you already do business with check your credit and when credit card companies that want to send you pre-approved offers check your credit.

You can see any soft pulls on your credit file when you check your own credit report. They will be under a subheading like “inquiries that do not affect your credit rating,” and you’ll see the requester’s name and the inquiry date.

NOTE: SmartBiz performs a “soft pull” during the pre-qualification process for SBA 7(a) loans that will not affect your credit score.

Additional credit resources

The SmartBiz Small Business Blog is chock-full of information about credit. Here are articles to help you learn more about this important component of business ownership.

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