Your Personal Credit History Can Have an Impact on Your Business Loan
Your credit score is a critical factor that banks consider when approving loans. Your income and repaying capacity play an essential role, but your credit score acts as a clincher. A good credit score makes it easy for the banks to decide whereas a sub-par credit score can make them think twice before lending you any money. It is because your credit history reveals your intentions and ability to repay.
When you Apply for a Business Loan, the banks usually call for the credit history of the company as well as its owners. Does your individual credit score have an impact on your Business Loan? Yes, it does. Let us see the situations where your credit score does affect.
Close links with business
If you are the proprietor of your company or the principal managing partner having the maximum stake in your company, you control the finances of the company as well. Under such circumstances, your credit score has a significant bearing on the bank’s decision to approve unsecured Business Loans. When you are solely responsible for steering your business, it becomes difficult to separate youfrom your company. Hence, banks rely on your credit score to evaluate the company’s financial health. In case you have a good credit score, the chances of approval of the loan are high. At the same time, a poor credit score can have a negative impact on the approval process.
In case you have started the business recently, there would be no chance for the company to have a credit record. Under such circumstances, the banks will not be in a position to judge the repayment history of the company. They have no other options but to check out your personal credit history. It can give the bank an idea of what to expect. If you are adept at managing your credit, the bank gets the confidence that they are lending to a safe and responsible business enterprise. On the other hand, if you have a chequered credit history, the banks become hesitant to lend liberally. They end up stipulating a higher rate of interest or reduce the amount, both of which can hamper your business.
What will be the situation if you are a partner in the business?
If you are a partner with a significantshare in the business, a poor credit score can affect your Business Loan. It is because the partner’s liability is co-extensive with that of the company. However, if you have a minor share and do not have much influence in the business, banks can overlook the fact that you do not have a good credit score, especially if the other partners are creditworthy.
What will happen if you are a director of your company?
The company is distinct from the individual. The credit report of the directors of the company should not have any impact on the Business Loan to the company. It is because a single director cannot influence the decisions of the company. However, if there are four directors and all the four of them have adverse credit scores, it has an enormous impact on the credit decision.
What is the solution?
If the reason for rejection of your unsecured Business Loan does not have a credit score, the best solution is to build one. You can avail the Small Business Loans and use them to build up your credit. Use these loans smartly and repay them on time. The prompt repayment of these loans can help boost your business credit score. It enables you to find a high-value loan in the future. You would need these loans for expansion or augmenting your working capital.
Choose the right Business Loan
Access the websites of Business Loan service providers like MyMoneyMantrato check out the various unsecured Business Loan products. You can compare Small Business Loan Interest Rates at a single location. It can help you zero in on the best business financing product. Fix a meeting with your lender to explain the business proposal. Preparing the business proposal is the most crucial aspect of the Business Loan.
Your proposal should contain details of the following aspects.
- The projections for the next three years
- If you want to apply for a term loan for acquiring fixed assets, you should submit your projections for seven years.
- Your cash flow statement and fund flow statement plays a significant role in explaining to the bank about your capacity to repay.
- You should explain to your bank the reasons for your poor credit score and the measures you propose to take to ensure such a situation does not arise again.
To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.
Talk to our Loan Specialists toll-free at 1800 103 4004 to know more about our products and offers.