Unlike banks, digital lenders place much less importance on your credit score when assessing you for a business loan. Even though it’s certainly not a deciding factor, most of these lenders at the very least take a quick peek at your credit score.
With our LendingScore™ (more on this later), it’s just one factor out of many contributing to your loan approval process.
One thing to remember is that when you’re talking about a ‘business loan’ this could mean a number of things. There are many business loan types out there and no two funding products are created equal, and neither are their credit score requirements.Here we’ll take you through all the different business loan types out there and you’ll learn the needed credit score for business loan products.
Is there a minimum credit score required to get a business loan?
Most lenders will require you to have a minimum credit score of 650 (with some going as low as 550, but that’s the bare minimum!). Keep in mind, this differs for each type of loan and certain lenders have their own specific requirement on top of that.
Because Lending Express partners with many lenders (50 and counting) offering many different types of funding, we’re able to put together a snapshot of the different credit score business loan requirements for each and every loan type.
Good to know: There are business loan options for those even with credit on the lower side of the scale. Without further ado…
Minimum credit score for a merchant cash advance
With a Merchant Cash Advance (MCA) you get an advance payment based on your business’s predicted future income or credit card sales. You then repay your cash advance as a set percentage of your credit card sales. Because your credit card sales are (sort of) used as collateral for your funding, there is less risk to the lender, which means…
Low credit scores are welcome!
Minimum credit score requirements for a merchant cash advance: Low credit score (500+)
Minimum credit score for an unsecured business loan
Unsecured business loans are ‘unsecured’ because they require no security or collateral for approval, so your assets aren’t at any risk should you default on payments (which of course every good borrower wouldn’t do). Since there’s more risk for the lender, there’s slightly more emphasis placed on your credit score, than with secured loans.
Unsecured business loans are a great solution for small-to-medium businesses that require short-term cash infusions. There’s also a lot of flexibility with an unsecured business loan, as terms can improve as your credit score and overall business health improves.
Minimum credit score requirements for an unsecured business loan: Medium credit score
Minimum credit score for a line of credit
A line of credit is a flexible business funding option that allows the borrower to withdraw cash up to a certain, predetermined limit as and when required. It’s simple to access the funds once approved and is ideal for businesses with low cash flow that have changing or uncertain funding needs.
Line of credit products are also cost-effective!
Minimum credit score requirements for a line of credit: Low to high credit scores welcome
Minimum credit score for an SBA loan
SBA loans are issued by lenders but are also guaranteed in part by the US Small Business Administration. SBA loans are very attractive because they offer high loan amounts at low-interest rates over long repayment periods. Needless to say, it’s pretty competitive to qualify for such a loan and the qualification criteria are high. There’s no set credit score requirement but bear in mind that if your credit score is on the lower end of high, then you will need to exceed expectations on all other criteria. By other criteria, we mean a business that has been operating for a long time and with strong financial records.
Minimum credit score requirements for an SBA loan: High credit score
Minimum credit score for a startup loan
Startup loans are designed for entrepreneurs who want to start or grow a new business. To get your hands on a startup loan, you don’t have to be a business owner (yet), but because this type of loan is quite risky for the lender – as you have no business experience or financial history, they generally have pretty strict qualification criteria.
Minimum credit score requirements for a startup loan: Very high credit score (680+)
Minimum credit score for invoice factoring
With invoice factoring, you sell your invoices to a lender at a discount in exchange for immediate funds. It’s the ideal funding solution for businesses with low cash flow that struggle with late customer payments or unpaid invoices. Many businesses will find themselves in need of invoice factoring at some point or another, with late payments neat inevitable.
The lender gets repaid when the invoice gets paid by the customer.
Minimum Credit Score Requirements: Low credit score (invoices serve as collateral)
An asset-based loan is the exact opposite of an unsecured loan in that the business needs to pledge assets as collateral for the loan. Because there’s less risk to the lender, the qualification criteria are far less stringent.
Minimum credit score requirements for invoice factoring: Low credit score
Minimum credit score for equipment and vehicle finance
A business vehicle and equipment loan does what it says on the jar. It’s specifically used to buy equipment or vehicles for a business. The loan is secured, meaning that collateral is used to secure the loan, so the loan is less risky to lenders and requirements are a bit more lenient.
Note that the lender has the right to seize the equipment if the borrower fails to make the repayments.
Minimum credit score requirements for equipment and vehicle finance: Medium credit score (600+)
Best solution if your credit score is too low
So what’s a small business to do if its credit score for business loan ratio is too low and blockingit from loan approval? Well, it’s time to be the boss of your credit score, don’t let it be the boss of you! Keep an eye on your credit score and try to improve it where possible.
At Lending Express, when you apply for a loan, each and every business will gain access to a LendingScore™ Dashboard – an easy to use and read financial report of your business with tips, tools and advice on how to increase your LendingScore™ – that is, your chances of getting a loan. This is useful for those who couldn’t qualify, as well as those who want to try to improve their loan terms.
Need financial right now while building up your score?
You can also apply for alternative funding solutions such as:
Business credit cards – if you’re wondering ‘should I finance my startup with credit cards?’ click the phrase to see if it’s the right move for you.
Credit.com – helps you compare and apply online for many types of credit cards
Credit repair solution – it may be that you’re on the borderline and just need a few more points to increase your credit score. It could be worthwhile to work on increasing your credit score a touch with the help of credit experts to help unlock better funding opportunities.
Bonus tip: Once you have your business credit card, use it responsibly and you’ll be able to improve your credit score.