2025 Credit scores for business funding
Understanding Business Loan Credit Score Requirements
When applying for a business loan, your credit score is one of the most critical factors lenders consider. However, credit score requirements can vary significantly depending on the type of loan, the lender, and other financial metrics. To improve your chances of approval, it’s essential to understand where you stand in four key areas:
1. Credit Score: Both your personal and business credit scores matter.
2. Years in Business: Most lenders prefer businesses with at least two years of operation.
3. Annual Revenue: Higher revenue improves your chances of approval.
4. Collateral: The type of collateral required depends on the loan you’re seeking.
Among these, credit score is the most important metric and is often the primary reason for loan rejections. While there are options for business owners with lower credit scores, they often come with higher costs. Generally, a **minimum credit score of 650** opens up the most financing options.
Why Does Credit Score Matter?
Your credit score is a three-digit number that reflects your financial responsibility and reliability. It provides lenders with a quick, objective assessment of your credit risk.
- High Credit Score: Signals to lenders that you’re likely to repay loans on time, often resulting in better terms like lower interest rates and longer repayment periods.
- Low Credit Score: May lead to higher interest rates, stricter loan conditions, or outright rejection.
Understanding Personal Credit Scores
The most commonly used personal credit score is the FICO Score, which ranges from 300 to 850. It’s calculated based on five factors:
1. Payment History (35%): Whether you’ve paid past credit accounts on time.
2. Amounts Owed (30%): Your credit utilization ratio (how much credit you’re using compared to your limit).
3. Length of Credit History (15%): The age of your oldest and newest credit accounts.
4. New Credit (10%): Recent credit inquiries and newly opened accounts.
5. Credit Mix (10%): The diversity of your credit portfolio (e.g., credit cards, mortgages, loans).
FICO Score Ranges
- 300-579 (Bad Credit): Limited financing options; may qualify for cash advances or invoice factoring.
- 580-669 (Fair Credit): Eligible for equipment financing, lines of credit, or term loans.
- 670-739 (Good Credit): Qualify for most loan types, including SBA and commercial real estate loans.
- 740-799 (Very Good Credit): Access to the best loan terms and rates.
- 800-850 (Exceptional Credit): Top-tier financing options with the most favorable terms.
Understanding Business Credit Scores
Business credit scores, typically ranging from 0 to 100,, reflect your company’s creditworthiness. Key factors include:
- Payment History: Timely repayment of debts.
- Credit Utilization Ratio: How much of your available credit you’re using.
- Length of Credit History: Older accounts can boost your score.
- Public Records: Bankruptcies, liens, or judgments can hurt your score.
- Company Size and Industry Risk: Larger companies or less risky industries may have higher scores.
Lenders often review both your personal and business credit scores when evaluating your loan application.
How to Improve Your Credit Score
If your credit score isn’t where you’d like it to be, take these steps to boost it:
1. Monitor Your Credit Reports: Check for inaccuracies and ensure outdated negative information (e.g., bankruptcies over 10 years old) is removed.
2. Get a Major Credit Card: Use it responsibly and make timely payments.
3. Set Up Automatic Payments: Avoid missed payments, which can significantly impact your score.
4. Resolve Disputes Early: Don’t let vendor disputes escalate to collections.
5. Consolidate Debt: Pay off high-interest credit card balances or convert them into installment loans.
6. Avoid Closing Accounts: Keep old accounts active to maintain a longer credit history.
7. Limit Credit Applications: Each application can lower your score by about five points.
Ready to Compare Business Loan Options?
Your credit score is the first thing lenders evaluate, so it’s crucial to understand where you stand and take steps to improve it if necessary. Whether you’re exploring SBA loans, equipment financing, or lines of credit, Lendio can help you compare offers from multiple lenders.
Apply for a small business loan today and find the financing solution that fits your needs!
| Loan Type | Minimum Credit Score |
|---|---|
| SBA Loan | 615+ |
| Term Loan | 600+ |
| Line of Credit | 600+ |
| Invoice Factoring | No minimum requirement |
| Equipment Financing | 520+ |
| Business Cash Advance (MCA) | 500+ |
| Commercial Real Estate Loan | 650+ |
| Lender Type | Minimum Credit Score |
|---|---|
| Banks/Credit Unions | 700+ |
| SBA Lenders | 650+ |
| Founder Funding | 550-650 |
| CDFIs/Nonprofits | Varies (some have no minimum) |
