Before you take a business loan, you may wonder whether your credit score matters to the lenders in order for them to approve your request.
What you may want to know is that the weight that your credit score carries as being an important part of the approval process depends on which kind of lender you decide to approach.
Let’s go through who is the most likely to require your credit score as a mandate and who isn’t:
Traditional Lenders: If you want a loan from a traditional lender such as a bank, but you have a bad credit score, you may want to re consider applying for one with them. First of all, it is almost impossible to get a loan from a bank if your credit score isn’t good; forget about it being average or bad. If they do however choose to give you a chance with their loans, there may be conditions for that.
One major condition that they may set forth is for you to provide collateral. Collateral refers to something monetarily valuable that you have to give as security to your lender who asks for one. It can be property, a car or anything that holds a price enough for your lender to cover up your loan cost in case you fail to pay it. The disadvantage of this, even if you are a 100% sure about being able to repay your loan is that not every borrower has something that expensive to give as security.
The next disadvantage of applying with a traditional lender is that they conduct hard credit checks. If your credit score is already on the undesirable side, a hard credit check will only hamper it further. This can majorly reduce your chances of getting funded in the future, which isn’t the best situation to be in.
Online Business Loan Lenders: Many online business loan lenders do not require your credit rating in order to fund you. Firstly, their loans are aimed at small and medium scale businesses unlike traditional loans that are usually offered to large scale ones. It isn’t surprising for a small business owner to have a poor credit rating due to reasons such as not being fully established yet or taking small amounts from multiple lenders. These lenders know that a bad credit rating isn’t the deciding factor about whether a borrower will be able to repay them or not. Also, they do not ask for security which is why it is very easy to get a loan from them. The only drawback is that the rates of interest may be higher than those of traditional loans.