What Credit Score Do I Need for a Business Loan?
There isn't a single credit score that you need to get a business loan.
Unlike some forms of consumer lending, business lenders don't all use the same credit scoring system or apply the same minimum score. A score that is acceptable to one lender may fall outside another lender's criteria.
Some lenders rely heavily on automated credit scores. Others use manual underwriting and consider the information behind the score alongside the company's turnover, cash flow, bank conduct, existing borrowing and trading history.
For an SME applying for finance, the more useful question is often not simply "What is my credit score?" but "What does my overall credit and financial profile look like?"
What is a business credit score?
A business credit score is an assessment of the credit risk associated with a company.
Credit reference agencies collect information about businesses and use their own models to produce scores, ratings or recommended credit limits.
These assessments can draw on information such as:
Companies House records;
filed accounts;
company age;
payment history;
County Court Judgments;
insolvency information;
existing credit information;
director information; and
other publicly available or contributed data.
The precise methodology varies between credit reference agencies.
This is one reason why there isn't a universal business credit score.
Is there a minimum credit score for a business loan?
There is no industry-wide minimum.
Individual lenders set their own credit policies.
A highly automated lender might require an applicant to achieve a particular internal or external score before proceeding.
Another lender may use a credit score as only one part of a broader assessment.
The required score can also vary depending on:
amount being borrowed;
type of loan;
repayment term;
security available;
trading history;
sector; and
lender's risk appetite.
You therefore shouldn't assume that failing to meet one lender's credit-score requirement means your business cannot obtain finance elsewhere.
Why are business credit scores different between agencies?
Credit reference agencies use different information and scoring methodologies.
As a result, the same company can receive different scores or ratings from different providers.
Even where two agencies hold similar underlying information, they may place different weight on factors such as:
financial performance;
company age;
payment behaviour;
adverse credit;
industry risk; and
company structure.
The numerical scales themselves can also differ.
A score of 70 from one provider doesn't necessarily mean the same thing as a score of 70 from another.
This makes it difficult to talk meaningfully about a single "good business credit score" without knowing which scoring system is being used.
Do business lenders only look at the credit score?
No.
Some lenders rely more heavily on scores than others, but a business credit score is only one way of assessing risk.
A lender carrying out more detailed underwriting may consider the underlying financial information directly.
For example, it might look at:
Turnover.
How much revenue is the business generating?
Cash flow.
Is enough cash being generated to support the proposed repayments?
Bank conduct.
Are balances stable? Are payments regularly being returned?
Existing borrowing.
How much debt does the company already have and what are the repayments?
Trading history.
How long has the business been operating and how consistent has its performance been?
Credit history.
Are there CCJs, defaults or other adverse events?
A credit score can help summarise some of this information, but it doesn't necessarily tell the whole story.
Can I get a business loan with a low credit score?
Potentially.
A low business credit score doesn't automatically mean that every lender will decline the application.
The important question is why the score is low.
For example, the score might be affected by:
a relatively short trading history;
historic losses;
a previous CCJ;
limited filed financial information;
a deterioration in financial performance;
late payments; or
other adverse credit.
Some of these factors may be more significant than others.
A lender that carries out manual underwriting may be able to consider more recent information that isn't fully reflected in the score.
What if my company's credit score is based on old accounts?
This can be particularly relevant for growing businesses.
Statutory accounts are historical by nature.
By the time accounts have been prepared and filed, the company's current trading position may have changed substantially.
For example, a business might have reported £500,000 of turnover in its last filed accounts but now be generating £100,000 of monthly revenue.
Alternatively, a company that appeared financially strong in its last accounts may have subsequently experienced a significant deterioration.
A lender can therefore consider more recent information such as:
current bank transactions;
management accounts;
VAT information;
recent turnover; and
existing borrowing.
Current performance can sometimes provide a more useful picture than a historical score alone.
Does my personal credit score matter for a business loan?
Potentially.
If you operate through a limited company, the company and its directors have separate credit profiles.
However, SME lenders may also search relevant directors, shareholders or proposed personal guarantors.
Personal credit can become particularly important where a director is providing a personal guarantee.
A lender may therefore consider both:
the creditworthiness of the company
and
the creditworthiness of relevant individuals behind it.
The relative importance of each will depend on the lender and the product.
What personal credit score do I need?
Again, there isn't a universal number.
Different lenders use different credit reference agencies, scoring models and underwriting criteria.
Some lenders may set minimum personal credit-score thresholds for directors or guarantors.
Others may focus more closely on the underlying credit information.
For example, a lender might be more interested in whether an individual has:
recent CCJs;
defaults;
insolvency history;
substantial outstanding debts; or
other significant adverse credit.
The actual information behind the score can therefore be more important than the headline number.
Does a CCJ automatically mean a poor credit score?
A CCJ can negatively affect a credit profile, but its impact depends on the scoring model and wider information available.
From a lending perspective, the lender may also look beyond the score and consider:
amount of the CCJ;
age of the judgment;
whether it has been satisfied;
circumstances behind it; and
whether there are other adverse credit events.
A small historic satisfied CCJ can present a very different lending risk from several recent unsatisfied judgments.
This is why manual assessment can sometimes produce a different result from a purely score-based decision.
Does a previous default affect my business credit score?
It can.
A previous default or serious payment problem may affect credit information available to lenders.
But again, a prospective lender may want to understand what actually happened.
It may consider:
when the default occurred;
amount involved;
whether the debt was eventually repaid;
circumstances that caused the problem; and
subsequent financial conduct.
A historic default followed by several years of satisfactory trading can be assessed differently from a default that occurred recently.
Do missed loan payments affect my chances?
Potentially.
Recent missed loan payments can be particularly relevant because they provide evidence about the company's current ability to service debt.
Even if a missed payment hasn't yet had a significant impact on a headline credit score, it may still be visible through bank statements or other underwriting information.
Repeated failed repayments can indicate that the business is experiencing liquidity problems.
A lender may therefore place greater weight on recent banking behaviour than on the credit score itself.
What is a good business credit profile?
Rather than focusing on a single score, it can be more useful to think about the characteristics that generally support a strong lending proposition.
These might include:
established trading history;
stable or growing turnover;
positive cash generation;
adequate liquidity;
manageable existing borrowing;
satisfactory payment history;
no significant recent adverse credit;
up-to-date financial information; and
satisfactory bank conduct.
A company doesn't necessarily need to be perfect in every respect.
Lenders make decisions based on the overall level of risk.
Can a strong business overcome a poor credit score?
Sometimes.
Suppose a company's external credit score is relatively weak because its latest filed accounts show a historic loss.
Since those accounts were produced, however, the company has:
returned to profitability;
substantially increased revenue;
built significant cash reserves;
reduced its borrowing; and
demonstrated satisfactory bank conduct.
A lender undertaking manual underwriting may be able to take that improvement into account.
The reverse can also be true.
A good historic credit score doesn't necessarily make a business a good lending proposition if its recent bank statements show falling revenue, repeated returned payments and rapidly increasing debt.
Current financial performance matters.
Can security help if my credit score is low?
Potentially.
Providing suitable security can reduce the lender's potential loss if the borrower defaults.
Some lenders may therefore be willing to consider applications on a secured basis that they wouldn't accept unsecured.
However, security doesn't replace affordability.
The company still needs to demonstrate that it can reasonably support the repayments from its normal cash flow.
How can I improve my business credit profile?
There isn't a single quick fix, but sensible financial management can strengthen the company's profile over time.
This can include:
Paying obligations when due.
Consistent payment behaviour provides evidence of financial stability.
Avoiding unnecessary adverse credit.
Deal with disputes and overdue liabilities before they escalate where possible.
Maintaining adequate liquidity.
Repeated returned payments can indicate financial stress.
Keeping Companies House information current.
File accounts and required company information accurately and on time.
Managing existing debt.
Avoid taking on more borrowing than the business can comfortably service.
Checking business credit information.
If information is inaccurate, contact the relevant credit reference agency about correcting it.
Improvement generally comes from sustained financial conduct rather than trying to optimise a particular score immediately before applying.
Should I check my business credit score before applying?
It can be useful.
Reviewing your company's credit information can help you identify issues that a lender may discover during its assessment.
If there is adverse information, you can prepare an explanation rather than being surprised when the lender raises it.
However, don't assume that the score you see is necessarily the same score or information that every lender will use.
Lenders can use different credit agencies, their own internal models and additional financial information.
Why might I be declined despite having a good credit score?
Because credit score is only one component of a lending decision.
A company could have a relatively strong score but still be declined because:
the requested amount is too high;
cash flow doesn't support the repayments;
existing debt is excessive;
recent turnover has fallen;
the business is outside the lender's sector appetite;
trading history is too short;
recent bank conduct is weak; or
the proposed loan doesn't meet the lender's criteria.
A good credit score therefore doesn't guarantee approval.
Likewise, a weaker score doesn't necessarily guarantee a decline.
What matters more: credit score or affordability?
For a sustainable business loan, affordability is fundamental.
A strong credit score may provide useful evidence about the company's historical creditworthiness, but it doesn't create the cash required to repay a loan.
A lender needs to be satisfied that the business can support the proposed repayments alongside its normal operating costs and existing financial commitments.
That is why cash flow, bank conduct and existing borrowing can be just as important — and sometimes more important — than a headline credit score.
Applying for business finance with Adelpha Capital
Adelpha Capital provides business finance to established UK SMEs.
We don't assess a business solely on the basis of a single headline credit score. Our underwriting considers the wider financial position of the company, including turnover, cash flow, recent bank conduct, trading history, existing borrowing and relevant credit information.
Where adverse credit exists, its nature, severity, timing and circumstances can also be relevant to the assessment.
If your business is looking for finance, you can apply online or contact the Adelpha Capital team to discuss your requirements.