Until now, SBA loan approvals and declines have been shrouded in secrecy. Entrepreneurs simply did not know how banks were looking at their credit scores and other financial information.
To add insult to injury, little to no insight was given when their business was declined.
SmartBiz Loans recognized this problem and is pulling back the curtain. Our SmartBiz Advisor™ educational tool tells you exactly what financial criteria banks consider before granting an SBA loan, generating your Loan Ready Score™ quickly and easily.
The seventh annual credit score survey, released by the Consumer Federation of America in 2017, suggests that knowledge of personal credit scores is eroding.
Here’s a quiz to check your smarts about this important metric!
If I have a strong business credit score, my personal credit score won’t matter when seeking a small business loan.
As a business owner, you might not think personal scores are important. Think again! If you’re seeking a small business loan, your personal credit score will be one important number considered and will impact the cost of that loan. In general, the higher the credit score, the lower the loan cost.
Your personal credit score shows lenders your annual income and marital status.
Your personal credit report includes a healthy amount of information but the following does not appear:
- Employment status
- Marital status and spouse’s credit history
- Assets (Bank balances, retirement accounts, investments or brokerage accounts)
- 401(k) loans
Personal credit reports simply reveal a number.
Consumer credit reporting agency Experian outlines the information included in personal credit reports.
- Personal information: Your name, including any aliases or misspellings reported by creditors, birth date, Social Security number, current and past home addresses, phone numbers, and current and past employers.
- Accounts: A list of your credit accounts, including revolving credit accounts, like credit cards, and installment loans, such as mortgages or auto loans. The list includes creditor names, account numbers, balances, payment history and account status (including whether or not the account is past due).
- Public records: Court judgments, bankruptcies and tax liens.
- Recent inquiries: Who has recently asked to view your credit report and when.
Your personal credit report helps lenders determine your personal annual income.
Jim Anderson, a management counselor for SCORE, explains why personal credit scores are so important. “A major consideration for a lender to make a loan is the ‘character’ of the borrower,” Anderson says. “Lenders want to loan money to people who have a positive track record for paying their obligations as agreed.”
Payment history is weighted more that other factors when calculating a personal credit score.
Your personal credit report is calculated by looking at the following:
- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit History.
- 10% Type of Credit Used (Revolving, installment, mortgage, etc.)
- 10% New Credit
I can get a free copy of my credit report.
Every consumer is entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting bureaus, Equifax, Experian and TransUnion. Be wary of sites outside of these three that offer free credit reports. Many are only free for a short time period then you have to pay. Read the fine print!
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Equifax, Experian and TransUnion will report the exact same personal credit score.
While most of the information collected on consumers by the three credit bureaus is similar, there are differences. For example, one credit bureau may have unique information on a consumer that is not being captured by the other two.
What You Need to Know
Ready to learn more? Check out this easy-to-digest article from the SmartBiz Small Business Blog with in depth details about your personal credit score and how to raise your numbers if needed: Your Personal Credit Score: What It Is, Why It’s Important
We can’t say this enough: It’s imperative that you can show a strong personal credit score when seeking a small business loan. The better your score, the more favorable the interest rate and terms. If you’re interested in low-cost funds, consider an SBA loan.
SBA loans are known as the “gold standard” due to very low rates and long terms. To prequalify for a working capital or debt refinance SBA loan for $30,000 to $350,000 from a SmartBiz Loans bank partner, the business owner’s personal credit score must be above 650. To apply for a $500,000 to $5,000,000 SBA Commercial Real Estate loan, the business owner’s personal credit score must be above 675.
Of course, your business is more than just your personal credit score. Banks that provide SBA loans look at a number of different factors like debt coverage, debt usage and business revenue trends. That’s why we created SmartBiz Advisor. This free and transparent tool can help you learn how to build your business lending profile by educating you about factors banks consider.
SmartBiz Advisor generates your personalized Loan Ready Score* quickly and easily— it’s a useful measure to help you assess your probability of approval for a low-cost SBA loan – no cost involved. Learn more about SmartBiz Advisor here.
* The Loan Ready Score is for educational purposes and is not the same as scores used by lenders for credit decision. SmartBiz Advisor is an educational tool to help you learn about how lenders may view your business. As such, you should not rely on this as the primary source of your business or personal financial decisions SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law.