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When it comes to business loans, the borrower’s credit score is often the first thing lenders look at to determine whether to make the loan. Credit reports and scores give lenders a window into a business owner’s financial responsibility and his likelihood of repaying the loan. So what do the numbers actually mean?

The traditional credit score (a FICO) is based on a formula developed by the Fair Isaac Corporation and it ranges from 300 to 850. Here’s a break-down by the numbers:

800 and above: This is the best range, reflecting excellent credit that can garner the best interest rates. These scores mean all payments are made on time, there is a sufficient history with the credit bureaus to show responsible borrowing and the balances on credit cards are kept low compared to their limits.

750 to 800: While not the cream of the crop, this range will still score borrowers very good interest rates on business loans. Those with scores this high still make all their payments on time, but may not have had as long of a credit history.

700 to 750: This range is still considered good credit. There may be some late payments in the past but nothing recent and no collections against the account. Business owners with this score range can still expect to receive good interest rates.

660 to 700: In this fair credit range, borrowers do not have any late payments or collections open, but may have recently had those issues. Borrowers may not get fabulous rates, but they can work on improving their score once they begin a loan and then refinance into a better rate later.

620 to 660: Those in this range may have ongoing collections against them and late payments in the past. Loans may still be available but at high rates.

620 and below: This is considered “subprime” or very bad credit. Borrowers in this range are typically in collections, behind on payments, and maxed out on their debt limits. Loans may be very hard to come by and borrowers can help themselves most by working on their credit score before borrowing any more money.

With a little understanding on the credit scoring system, company owners can be better prepared to navigate the business lending waters.


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