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The minimum credit score for a business loan typically ranges from 500 to 680, depending on the lender and loan type. Traditional banks often require higher scores (around 680 or more), while alternative lenders may accept lower scores (500-600). Higher credit scores improve loan approval chances and the offering of better terms.

Lenders may also look at your business credit score. A good business credit score is considered 70 or above, but this will also vary by lender.

Even if your credit scores don’t meet those minimums, or you’re not even sure if you have a credit score for your business, you still have plenty of options. Read on to learn about credit requirements for different types of small business loans and what you can do to build your credit score, if needed.

What Is a Business Credit Score?

A business credit score is used to measure the creditworthiness of your business. Your business credit is linked to you by your Employer Identification Number (EIN), which is how the government recognizes your business for tax purposes.

Like your personal credit score, your business credit score is a measure of your historical reliability with your financial commitments. The difference is that this credit profile specifically tracks your business’s financial history.

Types of Business Credit Scores

There are three credit bureaus that measure your business credit scores: Experian, Equifax, and Dun & Bradstreet. Most credit bureaus will give you a business credit score ranging from 1 to 100. An Equifax business credit report, though, will give you three scores: Payment Index, Business Credit Risk Score, and Business Failure Score.

As a small business, you also might encounter something called a FICO® SBSS (Small Business Scoring Service) score, which uses information from all three bureaus. Not all lenders require a FICO SBSS score, but you will likely need one if you are applying for a loan backed by the U.S. Small Business Administration (SBA). Your FICO SBSS score will land somewhere between zero and 300.

Why Do Lenders Care About Your Credit Score for Business Loans?

When applying for a small business loan, lenders will want to know how risky of a borrower you are. Your business credit score is what lenders will look at to determine your level of risk. The higher your score, the less risky a lender will view you. Typically, businesses with high credit scores will qualify for the best interest rates and terms.

Lenders ideally want to see a business credit score of 70 or higher (on a scale of 1 to 100). But again, if you don’t quite meet the minimum, you still may qualify for the loan, you’ll just pay a higher rate than you would with a higher credit score.

Lenders don’t just look at credit scores, though. They’ll also assess how long you’ve been in business and your annual revenue, among other factors.

Recommended: What Does a Credit Score of 800 Mean?

What Is Considered a Good Business Credit Score?

If a lender wants to see your credit score for business loans, it may look at one (or more) scores from the three business credit bureaus. Each has its own scoring range and its own risk categories.

Fitting into one of these risk levels doesn’t necessarily translate into certain success or assured failure in accessing funds. Higher scores, however, can certainly help your odds, while lower scores can translate into smaller loan amounts, higher interest rates, shorter repayment terms, or being denied approval for the loan.

Whatever your scores, it can be a good idea to shop around and compare business loan rates to make sure you get the best rates and terms possible for your business.

What Impacts Business Credit Scores

Each of the business credit bureaus uses a slightly different formula for determining your credit score for small business loans, but, generally, these factors weigh in:

•   How much debt your business has compared to its available credit

•   Whether you pay bills on time

•   How old your credit accounts are

•   Your industry

•   Your company’s size

Credit Score Requirements for Different Lenders

The credit score you need for a business loan depends on the lender and the business credit score system they look at. No matter what your credit score is, though, there are all types of business loans you may qualify for, including ones for businesses with poor credit and first-time business loans.

Let’s look at the FICO credit score (both business and personal) for business loans of different types.

Recommended: What Is an Unsecured Business Loan?

SBA Credit Score Requirements

The Small Business Administration looks at the FICO SBSS credit score for SBA loans like the 7(a) and 504. Here are the minimum requirements set by the SBA (keep in mind that individual lenders may require higher scores):

•   7(a) Small Business Loans: 155

•   Community Advantage: 140

•   Express Bridge Loan Pilot Program: 130

If your business doesn’t have a FICO SBSS score, SBA lenders may look at your personal FICO score (which ranges from 300-850). In that case, you’ll generally need a minimum score between 620 and 650, depending on the type of loan and lender. Those with personal credit scores of 720 or higher typically have the best chance of getting approved for an SBA loan.

Bank Loan Credit Score Requirements

Banks can set their own credit score requirements, and often they’re even more stringent than what the SBA requires. Check for specific bank credit score requirements before applying for a loan.

Equipment Financing Credit Scores

If you don’t have good credit but want to buy equipment, an equipment loan (also called equipment financing) can be a good option. Credit score requirements tend to be less strict for equipment loans because the equipment you’re buying acts as collateral for the loan and therefore reduces the lender’s risk.

A personal FICO credit score of 630 may be enough to secure this type of financing. In some cases, you can qualify for equipment financing with personal credit scores in the low 500s. Keep in mind, though, that you’ll most likely pay a higher interest rate if you have a low credit score because the lender is taking on more risk.

Short-Term Loan Credit Scores

Another option for financing if you don’t have stellar credit is a short-term business loan from an online or alternative lender. These lenders often look less at your credit score for business loans and more at other factors, like your annual revenues.

You may be able to get a short-term loan from an alternative lender with a minimum personal credit FICO score of 600, though you’ll want to keep in mind that the lower your credit score, generally the higher your interest rates will be.

And if you’re a startup, you may be able to find lenders that don’t require any particular credit score for startup business loans. Many won’t list the required credit score on their applications because they’ll work with you based on your other criteria.

Do Personal Credit Scores Matter for Business Loans?

In many cases, yes. When you apply for a small business loan, lenders will often look at both personal and business scores. If your business hasn’t yet established any credit scores, they will just look at your personal credit scores to determine whether your business qualifies for the loan.

What Is a Good Personal Credit Score?

There are three major credit bureaus that each calculate your personal credit score: Equifax, TransUnion, and Experian, and each with its own scoring range.

What Factors Affect a Personal Credit Score?

Each personal credit bureau uses different criteria for credit scoring, but they all generally look at the same factors:

•   Credit utilization: This is how much of your available credit you are currently utilizing. Your credit utilization ratio is calculated by dividing the total revolving credit you are using by the total of all your credit limits. Using more than 30% of your available credit is generally seen as a negative to creditors.

•   Age of accounts: Credit bureaus take into consideration how old your credit accounts are. The older the accounts, the more positive the impact on your credit scores. Because of this, you may not want to close credit accounts, even if you no longer use them.

•   Payment history: Credit bureaus look at whether you have any late or nonpayments on your accounts. Even one missed payment can have a negative impact on your score.

•   New credit: Agencies look at the number of credit accounts you’ve recently opened, as well as the number of hard inquiries lenders make when you apply for credit.

•   Credit mix: Credit scoring models also consider the types of accounts you have, as this can show how well you manage a range of credit products.

What Can You Do if You Have a Low Business Credit Score?

If you don’t need funds right away, a good strategy is to focus on establishing business credit and/or boosting your business credit profile enough to get out of the high risk category.

You can start building business credit by opening trade credit accounts with vendors that report financial activity to the business credit bureaus. This might be an office supply store you frequently purchase products from or the company you buy inventory from.

You can also build credit by opening a business credit card and making timely payments.

If you need capital right away, you also have options. Here are some ways to secure a loan without strong credit.

Put Up Collateral

Some business loans require business collateral, which is an asset you put up against the loan. If you are unable to pay off the loan, the lender can seize that asset to cover your debt. Having collateral lowers the risk for the lender, so you may qualify for a loan even with fair credit.

Provide a Personal Guarantees

Another option is to provide a personal guarantee. This is an agreement that states that, should your business be unable to pay off the loan, you will be personally responsible for paying it off.

Apply for Grants

Small business loans aren’t your only option for finding the money you need. There are also small business grants offered by local and federal governments, corporations, and nonprofits. Business grants do not have to be repaid.

Most grants have specific criteria a business needs to meet, such as being a minority-, women-, or veteran-owned business, or being in a certain industry. Grants also tend to be competitive, so read the fine print to make sure you qualify and follow the application instructions carefully to increase the odds of being selected. You may even want to try a combination of grants and loans to ensure you have the capital you need for your business.

How to Build Your Credit Score

If you want to build your personal credit profile, it can be a good idea to pay your bills on time and work on paying down existing debt, which can help lower your credit utilization ratio.

It can also be helpful to avoid applying for multiple loans or credit cards at the same time, as each one can impact your credit score for a short period. You may also want to periodically check your credit reports. If you see any discrepancy (maybe you paid off a credit card and that’s not reflected on the report), inform the credit bureau right away so your score reflects accurate information.

Are No Credit Check Business Loans Possible?

Yes, it is possible to find a loan that doesn’t look at your credit score. These lenders may look at other criteria, such as annual revenues, to determine eligibility.

These can be great in a pinch, but be aware that no credit check business loans tend to have higher interest rates than traditional loans. Only you can determine whether it’s worth it to pay that expense. If having the money now means you can take advantage of opportunities for your business or get you out of a tough spot, it may be worth the cost.

The Takeaway

While there is no set minimum credit score for business loans, lenders prefer to see good to excellent scores in order to qualify you for the best rates and terms. Because your credit score is a measure of your financial responsibility, it’s one of the key factors that lenders consider in your loan application. Lenders will typically look at both your personal credit scores and your business credit scores, if available.

However, your credit scores are just one part of your business’s financial profile. Lenders will typically take many factors — from your annual revenues to your business plan — into account during the application process. In addition, there are many different types of loans available, so even if your credit scores aren’t excellent, you likely still have options.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

Is there a minimum credit score needed to start a business?

There isn’t a minimum credit score (business or personal) required to start a business. However, if you want to take out a business loan, some lenders do have credit score requirements to qualify.

Can you get a business loan with a 600 credit score?

There are lenders who will approve your application if you have a 600 credit score, though banks and SBA lenders tend to look for scores starting at 620 or higher.

Can you start a business with no credit and no money?

Starting a business with no credit and no money is challenging, but possible. Entrepreneurs can begin by offering services that require minimal capital, like freelancing or consulting, relying on skills rather than assets. If you need a loan, online lenders often have lower qualifications for business loans than traditional banks do.

How can I build my business credit?

You can build your business credit by taking out a business credit card or loan and repaying it on time, as well as by opening trade accounts under your business name with companies that report to business credit bureaus.

Photo credit: iStock/JLco – Julia Amaral

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOSMB-Q324-058

Accounts payable are bills and other short-term debts that a business needs to pay. It includes all of a company’s current liabilities (due within one year), making it a key component of small business accounting.

Understanding accounts payable and having a dependable accounts payable system is essential to running a successful small business. Here’s what you need to know.

What Is Accounts Payable (AP)?

When a business buys goods or services from a vendor or supplier on credit that needs to be paid back in the near term, the accounting entry is known as “accounts payable.” On a balance sheet, accounts payable appears under current liabilities.

Accounts payable differs from a loan payable in that accounts payable does not charge interest (unless payment is late) and is typically based on goods or services acquired. Loan payables, such as balances on various kinds of small business loans, generally charge interest and are based on the prior receipt of a sum of cash from a lender.

In a company, the term “accounts payable” is also used as the name of the department responsible for handling vendor invoices and bills — from recording them in the general ledger to making payments to suppliers and other third parties.

Recommended: Guide to Vendor Financing

Is Accounts Payable an Asset or Liability?

In small business accounting, accounts payable is a liability since it is money owed to vendors and creditors. The account grows larger when more money is owed to vendors. When accounts payable increases, a business will typically have more cash on hand because of the delay in paying amounts owed. This typically results in a temporary increase in liquidity.

The short-term debt in accounts payable can help keep cash on hand to pay for other items, but eventually creditors will require payment.

Accounts payable differs from business expenses in that accounts payable is shown on a business’s balance sheet, whereas business expenses are shown on the income statement.

Recommended: Small Business Balance Sheets with Examples

How Accounts Payable Works

When a business purchases goods or services from a supplier on credit, also known as trade credit, payment isn’t made immediately. Typically, it will be due within 30 or 60 days, sometimes longer.

Here’s how it works:

A business will send the supplier a purchase order. The supplier will then provide the goods or services the business purchased, along with an invoice requesting payment by a certain date. The person or department responsible for accounts payable will verify the invoice against the purchase order and ensure the goods or services were received before issuing payment to their vendors.

If amounts owed to suppliers and other third parties are not paid within the agreed terms, late payments or defaults can result.

The sum of all outstanding payments owed by a business to third parties is recorded as the balance of accounts payable on the company’s balance sheet. Any increase or decrease in accounts payable from one accounting period to another will appear on the cash flow statement.

Recommended: How to Calculate Cash Flow

4 Steps of the Accounts Payable Process

Managing business finances is one of the most important aspects of running a small business. The accounts payable process has four key steps. Going through this defined process helps avoid errors and missing a payment deadline to a vendor.

1. Invoice Capture

The accounts payable process generally begins when a supplier or third party submits an invoice to the accounts payable department. After receiving the invoice, the accounts payable clerk will verify the invoice is valid and not a duplicate, code the invoice to the general ledger, and, depending on the company’s process, conduct a two-way match (in which invoices are matched to purchase orders) or a three-way match (in which invoices are matched to purchase orders and receiving information).

2. Invoice Approval

Once all the data is entered, an invoice must be approved. This involves an individual from the accounts payable department routing the invoice to the appropriate person (or people) in the company to get the necessary approval(s).

3. Payment Authorization

After an invoice is approved, the accounts payable clerk may need to get authorization to make a payment. The authorization will typically include the payment amount, method of payment, and date the payment will be made.

4. Payment Execution

Once payment is authorized, the invoice can be paid. Payment should be processed before or on the bill’s due date and may be done by check, electronic bank-to-bank payment, or credit card. Once the invoice is paid, it can be closed out in the accounting system.

Recommended: Debt-to-EBITDA Ratio Explained

Internal Controls and Audits

Internal controls are standardized operating procedures used by companies in their accounts payable process to reduce the risk that a business will pay a fraudulent or inaccurate invoice, pay a vendor invoice twice, and/or fail to pay an invoice on time.

These controls often include:

•  Purchase order approval

•  Invoice approval

•  Two-way matching (in which invoices are matched to purchase orders) or three-way matching (in which invoices are matched to purchase orders and receiving information)

•  Auditing for duplicates (which involves checking files manually or with an accounts payable automation platform to make sure duplicate payments aren’t made)

Accounts Payable Examples

Generally, any items bought on short-term credit fall under the accounts payable umbrella. This includes:

•  Licensing costs

•  Leasing costs

•  Subcontractor bills

•  Amounts owed for raw materials and fuel

•  Products and equipment received but not paid for

•  Subscription services

•  Installment payment plans

Accounts Payable vs Accounts Receivable

Accounts receivable is basically the opposite of accounts payable. While accounts payable is the money a company owes to suppliers and vendors, accounts receivable is the money that is owed to the company, generally by its customers. If two companies make a transaction on credit, one records it to accounts payable, while the other records it to accounts receivable.

Here’s a side-by-side comparison of accounts payable vs accounts receivable:

When a business owner needs an influx of cash, accounts receivable financing is a type of financing that enables them to receive early payment on outstanding invoices. The owner must then repay the money (plus a fee) to the financing company when they receive payment from their customers.

Recommended: GAAP Explained

Trade Payables and Accounts Payables

Though they sound similar, trade payables are actually slightly different from accounts payables.

Trade payables are amounts a company owes its vendors for inventory-related goods, such as business supplies or materials that are part of the company’s inventory. Accounts payables, on the other hand, includes trade payables, as well as all other short-term debts.

The Takeaway

Accounts payable is a current liability on a company’s balance sheet. It includes all of the short-term credits extended to a business by vendors and creditors for goods or services rendered but not yet paid for. Accounts payable also refers to the department or person in a firm that records and handles purchases and payments.

Lenders and potential investors will often look at a company’s accounts payable, as well as their accounts receivable, to gauge the financial health of a business. Mismanagement on either side of the equation can have a negative impact on your business’s ability to get credit or get approved for a small business loan, and could also put your business at risk.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

What are examples of accounts payables?

Any good or service that is purchased by the company on short-term credit should be listed as accounts payable on the balance sheet. Some examples include:

•  Leased vehicles

•  Subcontractor services

•  Equipment

•  Materials

•  Business supplies

•  Subscription services

What is the purpose of accounts payable?

The purpose of accounts payable is to accurately track what’s owed to vendors and suppliers and to ensure that payments are properly approved and processed. Having accurate accounts payable information is essential to producing an accurate balance sheet.

What is accounts payable reconciliation?

Accounts payable reconciliation is a process in which the accounts payable department verifies that the detailed total of all accounts payable outstanding matches the payables account balance stated in the general ledger. This is done to ensure that the amount of accounts payable reported in the balance sheet is accurate.

Photo credit: iStock/Panuwat Dangsungnoen

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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