How and why the credit reports and scores of the business owners are impactful to business loan approvals.
What is it that business lenders looking for in the owner's credit reports?
There is no big mystery here, business lenders want to see the same things that personal lenders want to see. The difference is the specific items on the reports that business lenders look at and we address a few of those here. You should optimize the personal credit reports of anyone owning 15% or more in your business.
Length of History - Business lenders want to see a relatively long history of reporting tradelines. This means that if you opened five or six new accounts in the last two years it will have a negative impact. Tradeline accounts showing five or more years in age will have a positive impact.
Types of Credit - Lenders look at how you use credit. They want to see positive patterns in your credit usage including that you have varied usage between the types of credit such as mortgages, installments, and credit cards.
Debt to Limit - This only relates to revolving credit such as lines of credit, home equity loans, and credit cards. Business lenders like to see no more than 45% debt to limit on any one account and definitely on the total combined of all your revolving accounts. Above 45% and you are most likely declined.
Recent Inquires - Business lenders like to see no more than 3 credit inquiries on your reports within the last 90 days and here is why. Business credit does not report until you use it. Therefore if a lender sees 5 recent inquiries they think you are either shopping your deal or stacking approvals. Stacking is waiting until you have 3 or more approvals and then starting to use them since they do not show up on business credit reports until you do.
Inside our business success system is a much more detailed instruction on how to optimize the personal credit reports of the business owners to make sure they are the way business lenders want to see them.