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Do You Need a Good Credit Score to Get a Small-Business Credit Card or Loan?

Thinking of applying for a small-business credit product? Here’s what to know about how your personal credit matters.

So you’ve started your own small business — congratulations! Becoming an entrepreneur is a brave and exciting move, one that can help you build wealth while pursuing your passion. Unless you’ve saved up quite a start-up fund, you’ll likely need some sort of credit product to help you get started. For most people, that generally involves opening a small-business credit card, applying for a small-business loan, or both.

Banks look at information like your business’s income and credit history to assess your creditworthiness before granting a small-business credit card or loan. But do you need a good personal credit score? You might be surprised to learn that, unless you’ve been in business for a long time, banks might ask to see your individual credit report. That means your own credit score could be a factor in whether or not you get approved for a small-business credit card or loan.

Here’s how your personal credit score may affect your odds of getting financing for your business.

Your legal structure matters

There are lots of different ways to legally designate your business, and some have implications for your personal finances. Particularly, if you are a sole proprietor or a single-member LLC, you likely pass your business income through your personal taxes. If this is the case, your personal credit score will be a key factor in any credit card or loan applications you submit.

Other legal structures require you to establish an Employer Identification Number (EIN), which will allow your business to start building its own credit profile (more on that below). The longer your business credit history, the more likely it is that you can apply for credit products without providing personal credit information. Even if you are a sole proprietor, you can establish an EIN and start building your business credit score.

The difference between personal and business credit

As noted above, your business can have its own credit score. The system works somewhat similarly to your personal credit score, although there is no industry standard for reporting a business credit score the way there is for personal credit. This means each business credit bureau reports your score a bit differently. Things like paying bills on time, your industry, and the kind of debt your business carries all factor into your business credit score. Just like your personal credit score, business credit takes time to build, and you’ll want to start thinking about establishing a good business credit history early if you know you need to apply for a loan.