When it comes to taking out a business loan, it's important to understand how it can affect your credit score. While a business loan won't directly affect your personal credit score, there are certain circumstances where it can have an indirect impact. If you apply for a loan for your business, it could be based, at least in part, on your personal credit. This is especially true if you're applying for a personal loan to help cover business expenses, such as a home equity line of credit.
When you apply for a business credit card, the lender usually conducts extensive credit research on your personal credit. This could lead to a slight drop in your credit score. When applying for a business loan, commercial lenders will analyze both your business and personal credit ratings before they approve your application. If you have poor personal credit, this could affect the terms of your business loan.
However, this doesn't mean you should stop applying for funding. Even if you have bad personal credit, you can still establish a good business credit history by engaging in debt financing and establishing a track record of performance. Business loans usually have more requirements than personal loans and you need to prove that your business is viable in order to obtain one. You can improve your business credit score by making payments on time or even early if your cash flow allows it. However, taking on too much debt can reduce your ability to purchase items for personal use in the future. It's important to note that some credit card issuers declare business credit card accounts to consumer credit bureaus.
This means that the way you use your business credit card could increase or decrease your personal credit rating. If your company's credit goes into default and you have personally guaranteed the account, this will negatively affect your personal credit. When accepting a business loan with personal security, it's important that you understand the terms and have the ability to repay the loan regardless of the company's performance. Personal debt has the potential to reduce your chances of being granted a business loan, as does a poor personal credit report. Business credit cards approved only with the EIN (not the social security number), business name and business credit rating of the owner will not affect your personal credit.