When a business owner is either starting a new venture, or expanding a business that has been around for awhile, but doesn’t have much credit history, and the business owner is applying for a small business loan — then the possibility of receiving the loan will depend on the business owner’s personal credit. Many business owners ask why.
If the business is set-up as a corporation then it is recognized as its own entity. Due to this business owners conclude that any application for a business loan should be based on the business and not on the personal credit history of the business owner. However if it is a new start-up, or doesn’t have much credit history even if the business has been around for years, then the lender doesn’t have anything to build a comfort level on for providing the loan. Lenders need a comfort level they are making a sound decision especially during these economic times.
If a person were to apply for a home mortgage, but couldn’t show income because they were new to the job market, didn’t have any credit history because they never had a credit card, or a car loan, do you think the bank would approve the loan? Not likely unless there is a co-signor who has a good credit history and is willing to put that at risk in the event mortgage payments aren’t made.
Business loans are always considered riskier than home loans. If lenders need to see income and credit history from the borrower on a home loan it stands to reason that lenders will want that and more on a business loan. The lender doesn’t care that the business owner has set-up a corporation. The lender wants security and if that means the borrower puts at risk personal credit then that is what has to happen.
Read the complete article “Business Loans and Personal Credit” at http://www.businessfundingsecrets.com/BusinessLoansPersonalCredit.html
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