Small Business Loans and Personal Credit



You may think of your business as an entity separate from yourself. However, your personal credit score and history may play a role in whether or not you are able to get a loan for your company. Why may this be the case, and can a business loan impact your personal credit score in the future?


New Businesses May Not Have a Track Record By Themselves


To get a business loan in your company’s name, it generally needs to be at least two years old and make anywhere from $10,000 to $100,000 a year. As many new or small businesses may not meet those criteria, it may be necessary for the owner to borrow money in his or her own name. Business owners who gave good credit may be able to get the amount that they want with terms equal to or better than the company could have gotten on its own.


The Loan Is Treated Like a Personal Loan for Credit Purposes


If you borrow money in your name or personally guarantee the loan, a failure to repay that loan will have a negative impact on your personal credit score and history. This is true whether you are using it to take a vacation or to provide your business with working capital. Therefore, if your company goes bankrupt, you could choose to continue to repay the loan with no impact on your credit score. It also means that you may be entitled to file for Chapter 7 bankruptcy to have the business debt discharged.


You Could Lose Property If the Loan is Secured


In the event that the loan was secured with collateral, you could lose that collateral if you fail to pay the loan. This means that you could lose your house, your car or another valuable personal possession if the business loan is not repaid for any reason. While many personal loans are unsecured, a business owner may choose to secure a personal loan to receive a lower interest rate or other terms that may make it easier to repay.


Whenever you borrow money, it is important that you know your rights and responsibilities as a borrower. Whether the loan is for business purposes or is to be used for personal reasons, it is important to have a plan to repay the money and to understand the consequences that may come if the loan is not repaid.