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Small businesses are the lifeblood of the American economy.  They make up over 99% of businesses in America, and are responsible for the majority of new job creation in the US as well.  Now, more than ever, entrepreneurs are thinking of starting up or expanding the businesses of their dreams. And most of them seek small business loans to make it happen.

It may come as a surprise to small business borrowers that your personal credit is a major factor in a business lender’s decision. A small business owner who has exemplary personal credit is going to be at a significant advantage when attempting to secure small business loans or other lines of business credit.


Accordingly, as the US Small Business Administration recommends, it’s advisable that a small business owner do their best to “clean up” their personal credit before applying for a business loan.  Below are some factors that are taken into consideration when applying for small business credit:

  1. Overall Payment History

Like any lender, a small business creditor is going to be concerned with a borrowers’ ability to repay.  Your credit history is one of the surest signs of this.  A history showing that you have held credit in the past, and successfully paid previous debts without excessive missed or late payments, will go a long way towards convincing a creditor you are a good candidate for a small business loan.

Delinquent debts on a credit history are a big red flag for lenders.  If you have debts on your record, you should seek to bring these accounts into good standing prior to applying for business loans.

  1. High Mortgage Payments

Mortgage payments tend to drive up your debt to income ratio (DTI). That is the ratio between the your standing debt and current income.  A sufficiently high monthly mortgage payment may cast doubt on your ability to repay a small business loan, especially if a business is slow at first and the owner is having to dip into personal funds to keep it operating.

Mortgages can also have a secondary impact.  Homes are a common form of collateral on secured small business loans.  However, if the home is tied up in a mortgage already, its value as collateral drops significantly.

  1. Student Loans

Despite being practically ubiquitous in the business world, large student loans can absolutely affect your ability to obtain small business credit, according to Penn State and the Federal Reserve Bank of Pennsylvania. That research revealed that many small business owners are already so burdened by student loans they find it difficult to obtain further business credit.

Those carrying large amounts of student debt may have options available for refinancing or consolidation, which would reduce their monthly payment ratios.  Otherwise, small business entrepreneurs may wish to seek alternative forms of small business credit.

  1. Credit Card Usage

If you are seeking a revolving line of business credit, the most natural piece of history a lender looks at is your credit card history.  Most forms of revolving business credit work in very similar ways to personal credit cards. Your history in using them can be a powerful argument for – or against – extending revolving credit to your business.

A credit history which shows credit cards in good standing, with a history of keeping the debt within limits and paying it down as opportunity allows, will make a good argument in favor of your worthiness for revolving business credit.

  1. Previous Business Loans

Have you attempted to start up a business in the past while taking out credit for that business?  Depending on the circumstances, this could aid your chances of receiving new small business loans, even if the venture wasn’t a success.  Small business lenders are primarily concerned with getting their money back, regardless of the long-term stability of the venture they helped.  If your debts were paid off, it reflects well on you.

On the other hand, someone with a business bankruptcy in the past, which resulted in unpaid or renegotiated debt, would be at a serious disadvantage when attempting to obtain new business credit.

  1. Unexpected Events And Tragedies

While the exact statistics are often debated, there’s no question that the single biggest cause of bankruptcies in the United States are unexpected medical emergencies, as well as other life-altering events such as divorces and family deaths also contributing heavily to the total.

Major events such as these can very easily leave a major “black mark” on your past credit record.  However, the good news is that most business lenders also understand that such radical events are rare and often impossible to plan for.  If such an event is in your past, be prepared to discuss it with your potential business lender.  If you can illustrate how you dealt with the problem, and explain the steps you took to put yourself back on stable financial footing, it will reflect well on you when seeking small business loans.


Everyone would love to have great credit when applying for a small business loan. But sometimes it’s simply not a viable option. However, poor past credit does not necessarily mean it’s impossible to receive small business loans or other funding.

United Capital Source (UCS) has provided more than $500 million in small business loans to thousands of applicants who have been in business at least six months.  UCS specializes in finding ways to make business credit available even to applicants with problems in their credit history. We don’t merely rely on figures from credit reports; we get to know you and your business and help you find the best options available to you. We want to see you thrive and nurture your business into long-term success.

Regardless of your credit history, we invite you to apply online today.  It’s quick, easy, and free… and you might be surprised at just how many options are available.

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