How your personal credit affects your business

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As an entrepreneur, you should be aware that your personal credit can affect your ability to secure a business loan or other types of financing.

Many lenders—especially financial institutions—review personal credit scores as part of their decision on whether or not to grant a loan. To many lenders, your credit score reflects how well you handle money.

What can I do to improve my score?

If a negative ding on your credit report is due to a legitimate circumstance beyond your control (e.g., identity theft), make sure that you submit a letter with your loan application that explains any of your personal credit shortcomings and illustrates the steps you’ve taken to prevent it from happening again.

If you have ever declared bankruptcy or have an established pattern of making late payments or no payments, it will be important for a financial institution to see demonstrated proof of improved money management. Negative dings remain on a credit report from seven to 10 years, so if there are negative reports, be prepared to offer some explanation when applying.


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Is this true for every lender?

In general, the weight of your personal credit rating depends on the type of lender and/or loan you’re applying for.

  • The Small Business Administration (SBA) requires an excellent personal credit record in order for you to qualify for a loan. On the other hand, Independent Investors–whether a venture capitalist or an angel investor–may not depend on your personal credit rating as much.

Further, banks tend to rely on your personal credit history more heavily while alternative lenders have a variety of ways to determine your creditworthiness. For some alternative lenders, your personal credit plays a lesser role than it does with banks.

Your personal credit may impact how readily you can get financing for your business. Researching alternative sources for funding and taking steps to boost your credit score can pay off in increased funding options for your business.

To learn more, check out this comprehensive guide on how to start your small business. And to learn more about how sales taxes affect your bottom line, check out our sales tax calculator.

This article originally appeared on the Quickbooks Resource Center and was syndicated by

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