Do You Need a Great Credit Score to Secure Business Funding?

Credit scores have for the longest time been a powerful tool in determining people’s financial lives. You need a good credit score to borrow a car loan or a mortgage. On the other hand, a bad credit score will make most lenders avoid you.

The FICO credit scores have largely dominated the decisions of lenders to qualify an individual or business for a credit card or a loan. FICO’s scores range between 300 and 850 and are predetermined by a borrower’s data from the credit bureaus.

Admittedly, the process of lenders interpreting credit scores can be prone to vagueness, at least for borrowers. This has likely built up to the current Biden administration proposing the replacement of the three main credit bureaus with a new public credit reporting agency.

It is impossible to predict how long society will continue to rely on credit scores. But as a business owner, the reality is, you will experience both ups and downs which will likely affect your credit score. Whether you have a good or bad credit score, you still have the chance to qualify for funding. What you have to evaluate is if all lenders rely on credit scores for approval.

Lenders and Credit Scores

Before you start engaging large lenders or investors, you will naturally start with personal funds, friends, and family. These sources come in handy and do not care about credit scores. But as your capital needs expand, your creditworthiness will play a bigger role.

Usually, one of the first points of contact is your local bank. But how much do banks care about credit scores? This depends on how you plan to finance your business. If you are going to use credit cards to finance your business, then you will have to keep your credit scores high. But, before long, you may need to borrow a larger capital than your line of credit. In this case, a traditional bank will look beyond your financial history because they give great priority to their financial interests. So, even if you have a credit score above 700, you can still be disqualified. They will look into factors beyond your capacity such as the market conditions and industry trends.

As for investors such as venture capitalists, they will focus on analyzing your sales and revenue projections and whether you have the right team to grow a strong brand. In the end, the significance of your financial history will significantly depend on your source of funds, having in mind that other factors will also come into play.

What Is The Cutoff For Credit Scores?

Experian, Equifax, and TransUnion are the three main credit reporting bureaus that play a big role in the credit scoring system in America.

Generally, normal lenders such as banks and credit unions consider your business credit scores or FICO scores. Business credit scores range from 0 to 100 with a minimum score of 75 for small businesses. However, they, including the bureaus, will also look into many other factors like your risk profile.

If you are running a startup for less than a year, your credit score will matter. The ratings for this are between 300 and 850 with a minimum score requirement of 500 to access options such as merchant cash advances.

Building Up Your Business

Overall, to secure good credit scoring, a business will need to pay bills on time, manage debts, and be in good standing with the law. But even with bad credit, you can still be eligible for financing. Bad credit is rated as having a FICO score of between 300 and 579. Your options include using security such as personal assets or equipment or seeking other lenders who look for other requirements such as cash flow. The main idea is to run your business efficiently to present a good picture to lenders and investors.

MobyCap can fund businesses with all credit profiles, even those below 600. We understand that bad things sometimes happen to good people and realize that a credit score doesn’t tell the whole story.

While we take credit into consideration, our underwriting process places more emphasis on time in business (1 year+), cash flow (at least $40k in revenue per month), and how the business can use our funds to grow (opening up a new location, buying inventory, scaling the staff, materials for projects).

To move forward today, contact us by email at info@mobycap.com. As a BBB-accredited business, we have experience serving all industries and welcome the opportunity to work with your organization.

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