The Small Business Administration (SBA) loan works closely with small business owners or borrowers to provide financial resources borrowers need to purchase or repair real estate, equipment, machinery, or other assets. To qualify for an SBA small business loan, a small business owner must meet a general standard set by SBA or lenders. One of the requirements, though it’s not explicitly stated, is a healthy personal and business credit score. While it’s not impossible to get an SBA loan with a bad credit, having bad credit surely puts your business at disadvantage when you’re applying for an SBA small business loan.

Let’s look at how a bad personal or business credit score affects a small business owner’s ability to successfully get an SBA small business loan.

Personal Credit Score

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The SBA hasn’t set a minimal requirement for a FICO score that you need to achieve to qualify for an SBA loan. The qualification for credit score varies entirely on the lender which is oftentimes a large financial institution such as Bank of America or Banc of California. The financial institution determines a specific credit score that a borrower must meet to acquire an SBA loan. Generally, you need a personal credit score of 640 for a lender to accept your SBA loan application. FICO Scores, which range from 300 to 850, are the credit scoring model most commonly used by lenders for evaluating a borrower’s creditworthiness. A FICO Score of between 640 to 719 is considered “good” by most lending standards. 720 to 799 is considered as very good and 800 or higher (maximum is 850) is considered as exceptional.

Bad Business Credit Score

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Business credit score ranges from 0 to 100 or 0 to 300, depending on the credit score assessment model. Needless to say, the higher your business credit score, the more likely you can get an SBA small business loan. A higher business credit score indicates that you’re likely to pay your loan payments in a timely manner and you’re regarded as a more trustworthy or credible borrower. Conversely, bad credit score suggests that you’re less likely to make your loan payment on time or at all and you’re seen in a bad light.

There are several factors that affect your business credit score – the factors include:

Payment and credit history
Credit utilization
Debt and your debt utilization rate
The risk associated with your industry
Size of your company (number of employees, annual sales, financial statement)

Prior to applying for a SBA 504 loan, it’s imperative for you to understand your current business credit score and opportunities to improve it. The top three credit bureaus you can check your business credit score are:

Some lenders also consider your FICO Small Business Scoring Service (SBSS) score, which uses a hybrid model and reflects your personal and business financial health.

Impact of Bad Credit on an SBA 504 Loan Terms

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