How Personal Credit Affects Small Business Borrowing

Unlike the CEOs of major public companies, whose personal financial situation has little effect on their companies’ borrowing, if you are a small business owner, your personal credit is a major factor influencing your company’s access to capital. The power of personal credit scores to predict small business loan repayment, the legal structure of many small businesses, and small business owners’ use of personal guarantees and personal borrowing to finance business operations, all link small business owners’ personal credit to their companies’ access to capital.

Many, if not most, lenders will look at your personal credit score if you are a small business owner seeking a loan for your company. A 2006 report written for the U.S. Small Business Administration found that 71 percent of banks used small business owner credit scores when underwriting small business loans.

How Personal Credit Affects Small Business Borrowing