Navigating the CDFI way of approaching credit scores in the small business loan process.
Personal credit and business credit are two distinct entities that are used to assess a person's or a business's creditworthiness. Personal credit is based on an individual's credit history and financial behavior, while business credit is based on the financial health and payment history of a business.
When applying for a small business loan, both personal credit and business credit are important factors that are considered by lenders, including Community Development Financial Institutions (CDFI's). While a strong business credit score can demonstrate the financial stability of the business, personal credit scores are also considered because they provide insight into the individual's ability to repay the loan.
How does a CDFI use credit scores in the loan application process?
While credit scores are important to CDFI's, they are not the only factor that is considered when evaluating a loan opportunity. Pathway looks at factors like business cash flow, collateral, and the entrepreneur's experience. We consider your opportunity and the potential impact the loan could have on starting and growing your business and the impact in your community.
This doesn't mean your credit score is not used, or not important. To the contrary, it is important! It is just one piece of the puzzle though, and it is not typically a make or break.
No. It's not that black and white. The minimum credit scores required to get approved for a small business loan vary a lot depending on the lender and the type of loan. For traditional lenders, the minimum credit score can range from 700 and higher, with the exact score required varying based on the lender's risk tolerance and lending criteria.
However, for CDFI's like Pathway Lending, the minimum credit score requirements can be much lower. Our loan clients typically have a credit score above 580. CDFI's understand that credit scores are just one factor in the loan application process and are more focused on the overall financial picture and the impact opportunity.
Working with a CDFI can provide several unique benefits for small business owners seeking financing. One of the main benefits is access to financial education and resources to help small business owners understand and improve their credit scores. We can also offer a more flexible loan process compared to traditional lenders.
Pathway wants to work with small business owners to find a loan solution that meets their specific needs and financial circumstances, even if your credit score is not as high as traditional lenders might require. This means that a low credit score is not a black and white decision.
Connect with a Pathway coach to discuss your credit and loan application process.
Whether your score is exceptional or in need of improvement, it is helpful to talk about it with a financial expert.
Pathway coaches are experts in their field—former executives, CPA's, and more with expertise ranging from accounting to sales & marketing. We're ready to help you and your business start and grow!
