1 year, 9 months ago
How does one owner's credit score affect the chances of a small business loan?
Obviously I'm talking about when there is more than one owner of the business. In the event that the small business is a partnership, is it treated almost the same way a marriage would? If one person's credit score is almost perfect but the other is abysmal do they get the loan?
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M$2 Answers
There are several factors that lenders take into consideration to determine in one qualifies for a small business loan. One person out of the two in a partnership will not by itself disqualify them for a loan. Here are the factors involved.
1. Credit history: This is one of the primary factors and it is reflected in your credit score. Request a copy of your credit report from all three major reporting agencies: Equifax, Experian, and TransUnion before applying for a loan. Missing a payment here or there isn't a major issue, but bankruptcy could almost guarantee one not to get the loan.
2. Vested interest: Before applying for a loan, make sure you have a reasonable amount of equity invested in their business. When lenders see a good amount of money invested in the business, it makes them feel that you are working hard to try and make the business a success.
3. Working capital: Working capital is often though of as available cash and is essentially current assets minus current liabilities. A deficency in working capital increases the chance that your business will fail and lenders will be less likely to grant a loan.
4. Ability to repay: Cash flow from your business and collateral are two things lenders ill look for. They will also look at your past financial statements for personal assets and liabilities, personal tax returns for the past three years, balance sheets, profit and loss statements and accounts receivable. If your business has shown to consistently make profit you are more likely to get a loan.
5. Experience and character: Make sure you have experience in the type of business you want to run. If not, hire someone that does becauselenders will expect people in your business that have experience.
So, you can see that credit alone wont keep one from getting a loan and in your question, if one partner has an excellent credit and all the other criteria mentioned above fall into place, I see no problems in the partnership getting the loan.
http://keetsa.com/blog/wp-content/uploads/2007/05/small-business-loan_350.jpg
1. Credit history: This is one of the primary factors and it is reflected in your credit score. Request a copy of your credit report from all three major reporting agencies: Equifax, Experian, and TransUnion before applying for a loan. Missing a payment here or there isn't a major issue, but bankruptcy could almost guarantee one not to get the loan.
2. Vested interest: Before applying for a loan, make sure you have a reasonable amount of equity invested in their business. When lenders see a good amount of money invested in the business, it makes them feel that you are working hard to try and make the business a success.
3. Working capital: Working capital is often though of as available cash and is essentially current assets minus current liabilities. A deficency in working capital increases the chance that your business will fail and lenders will be less likely to grant a loan.
4. Ability to repay: Cash flow from your business and collateral are two things lenders ill look for. They will also look at your past financial statements for personal assets and liabilities, personal tax returns for the past three years, balance sheets, profit and loss statements and accounts receivable. If your business has shown to consistently make profit you are more likely to get a loan.
5. Experience and character: Make sure you have experience in the type of business you want to run. If not, hire someone that does becauselenders will expect people in your business that have experience.
So, you can see that credit alone wont keep one from getting a loan and in your question, if one partner has an excellent credit and all the other criteria mentioned above fall into place, I see no problems in the partnership getting the loan.
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M$Report Abuse
Hi @bovandy, @kerryk is very correct. A low or bad credit alone cannot prevent one from getting a small business loan, especially if the other party’s credit report is in good standing. But I must add that some lenders might not want to consider the application of a business loan, if one of the partners has a terrible credit report.
When you apply for a business loan with a partner who has a better credit rating, the other person’s credit usually covers most of the necessary credit requirement. But it does not end there.
The two parties must show that they can pay back the money, especially the one with a better credit history. My neighbor started his business with his brother who had a bad credit, and when they applied for a small loan, they loan was granted.
He told me the bank also wanted to see that he had some kind of working capital. Just as @kerryk had earlier said. I think it convinces the bank that you are serious about the business and not completely dependent on their funding.
http://poisemag.com/features/images/key_steps_in_applying_for_a_small_business_loan.jpg
When you apply for a business loan with a partner who has a better credit rating, the other person’s credit usually covers most of the necessary credit requirement. But it does not end there.
The two parties must show that they can pay back the money, especially the one with a better credit history. My neighbor started his business with his brother who had a bad credit, and when they applied for a small loan, they loan was granted.
He told me the bank also wanted to see that he had some kind of working capital. Just as @kerryk had earlier said. I think it convinces the bank that you are serious about the business and not completely dependent on their funding.
You can leave an optional "tip" with Mahalo's virtual currency, Mahalo Dollars. If you are asking a difficult question that might require some research, or if you'd like a wide variety of feedback, a higher tip often leads to more answers to your question.
M$
