Can Your Personal Credit Affect Your Business Credit?

business person checking credit score

A credit score is a reflection of a person’s or business’ creditworthiness.

As a general rule, the higher your credit score, the more trustworthy you are to lenders. But does your personal credit rating affect your business credit score?

When a borrower (whether that’s an organisation or an individual) misses a repayment for their loan, their credit score is likely to be negatively impacted. This is true for almost all loan types, from everything from mortgages to a short term loan.

In turn, your credit score can be positively impacted when you successfully meet repayments as scheduled.

However, it is so important to know that a credit score is not the only contributing factor that makes an organisation or an individual a viable borrower to lend to. A couple of other factors are:

Your exit plan

If you are applying for a short term business loan or bridging loan, investors will be able to evaluate the viability of a loan based on your strategy, and whether they feel it is an effective and efficient way to complete a project.

This could depend on the lender’s own knowledge of the industry; they may have a broker advising them or internal advisors to help assess how trustworthy your venture is to invest in and how likely you are to be able to repay borrowed money.

Your experience

Similar to your credit score, if you have no business experience and you are a sole trader or just trying to get your new start up off the ground, a lender might not consider you a reliable option for repayments, as you have no demonstrable skill or history to help back you up.

What’s the difference between the credit types?

As we have already established, a personal credit score evaluates your own ability to repay a loan.

For a business, it simply measures the company’s ability to meet their financial obligations. This includes vendors and suppliers, who could object to work with a company who has a particularly low business credit score as they could work on consignment or an invoicing payment system.

When could your personal credit affect your business

If you are a sole trader, a lender might have no other evidence to interpret and evaluate your financial trustworthiness. This means it is highly likely that your personal credit will be checked when you are applying for a business loan.

The same process will apply if you are in a simple partnership, the only difference is that both your histories will be taken into consideration. You should both be taken into equal consideration, yet your loan might not be approved even if you have a stellar credit score if the person you are in business with has a bad credit rating.

Furthermore, some advice on business and personal credit scores from credit risk assessors claim that a company with up to 20 employees may still be judged on their owner’s personal credit score alongside their business’s financial viability.

This means if you are an SME or a business just starting out, with plans to build and expand, you may still be subject to personal credit check, which could impact your ability to borrow money to expand your business.

Finally, if you are a limited company, your business score is an entity on its own. This doesn’t mean the owner or the commanding individuals in the business won’t be checked.

It is extremely important to remember that different companies will score individuals – and businesses – in different ways. They will have different brackets and remits for the sizes of companies and what financial products are available to them.

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