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Does Applying for a Business Loan Impact Credit Scores?
Applying for a business loan will impact your business credit score temporarily because the credit bureaus use the number of your loan applications as a signal of how risky you are to lend to. The impact is short-lived because Experian tracks applications for 9 months and another major business credit bureau, Dun & Bradstreet, tracks inquiries for 12 months.
Don’t panic if you see the drop. It is only temporary, and getting the financing you need outweighs a slightly lower score in the short run. Creditors and lenders both expect fluctuations, so there’s nothing to worry about. Here’s some more information about why applying for a business loan has a temporary impact on your credit score.
Why Applying for Business Loans Impacts Your Credit Score
The bureaus lower your credit score when applying for business loans because, if you’re approved, you’ll be a higher-risk borrower for future lenders as you’ll have less cash on hand while you repay your current loans. This is also why the impact is temporary.
If you don’t apply for more loans in the near future, it sends a signal to the credit bureaus that you secured the loan successfully, are paying it back regularly, and don’t need more financing to keep your business running. Different types of loans or financing strategies have different impacts. Knowing this helps you decide which option is best for your needs.
Types of Business Loan Applications That Impact Credit Score
All business loan applications impact your credit score including standard small business loans from banks and alternative lenders, as well as trade credit applications for suppliers and vendors. These are called hard credit inquiries, which are inquiries that meet two requirements:
- They are attached to a specific and defined amount of credit you’re applying for.
- You gave permission to the lender or other business to make the inquiry and alert the credit bureau that your business wants to borrow money.
Because anyone or any business can check your business credit score without your permission, the bureaus don’t change it for soft inquiries (i.e., a bank checking your score to send you a special introductory rate or credit card offer). Your score won’t be impacted in these cases, even if there are numerous soft inquiries, because they don’t signal that your business wants more credit.
Suppliers and vendors will sometimes do a soft versus a hard inquiry for trade credit, and it’s fair to ask them beforehand if you’re worried about an impact to your score.
While applying for a loan will impact your business credit score, it’s not a bad thing as long as you don’t submit too many applications in a short period of time. Each lender and situation is different, and some types of borrowing will have a stronger likelihood of a hard inquiry.
While there is no one-size-fits-all scenario, here’s a quick table that explores common funding options and whether they typically impact your score.
Inquiry for financing type | Impacts business credit score? |
Small business loan | Yes |
Equipment / Vehicle financing loans | Yes |
Business credit card | Yes |
Line of credit | Yes |
Promotional offer for loan or credit card | No |
Competitor checking your credit | No |
Supplier / Lease / Trade credit | Sometimes (Ask whether they will submit a hard vs. soft inquiry) |
Applying for a business loan will impact your business credit score because a hard inquiry will be done. If you’re curious about loan options and want to know the best way forward before hard inquiries are made, click here to learn more about our different types of business loans. You can apply and explore your options with no credit impact.
Your credit score helps us determine your eligibility for financing as well as your financing terms. Exploring your financing options with us does not impact your credit score. If you apply with us and we are unable to offer financing to you, we may try to match you with one of our partners to obtain financing, and they may perform a hard credit pull to determine your eligibility for financing.