Do All Business Loans Require a Credit Check?
by Fundid on Sep 5, 2022 2:11:00 PM
Having access to reliable capital is crucial to your growth as a business owner. Unfortunately, it's not always easy to obtain. Depending on your circumstances, you may be in a position where looking for business loans that don't require hard credit checks will be the most beneficial to your company–and they do exist! Of course, there are pros and cons to obtaining a credit check-free business loan, so it's important to consider all aspects of what you're jumping into before you commit.
To discuss whether business loans require a credit check, we'll dive into:
- The two types of credit checks
- Businesses that require credit checks and those that don't
- The pros and cons of having your credit checked or not
- Alternative funding options may work for you
What Is a Credit Check?
A credit check occurs when you, a bank, a lender, your landlord, or another provider investigate your financial history. The credit check grants them access to information concerning your credit history, your payment habits, any existing loans you may have, and much more. It can come in two forms, a soft check and a hard check, each with its benefits and downsides.
Soft Credit Check
A soft credit check does not affect your credit score at all. This credit check occurs when you authorize someone to check your credit report independently from a credit application. Typically, a soft credit check is the result of either you as the business owner or your potential employer requesting access to your loan history, lines of credit, payment history, collections, or other public records available at the time.
It is important to note that a soft credit check will not be visible to any financial institution desiring to check your credit report.
Hard Credit Check
Unlike a soft credit check, a hard credit check will affect your credit score. Limiting the number of hard credit checks done on your account is good practice to preserve as much of your existing credit score as possible. Additionally, when you have multiple hard credit checks on your account, lenders investigating your finances may become wary of working with you.
None of the information provided in this check will differ from those listed in our discussion of soft credit checks above. Still, the hard inquiry will remain on your credit report for up to two years, and every lender or provider who checks your credit report will see that history.
Do All Business Loans Require a Credit Check?
The short answer? No. Not every business loan requires you to undergo a credit check before you can benefit from the loan or other service provided. Requiring a credit check varies from institution to institution, as does whether they require a hard or soft credit check to do business with you. Most traditional banks still need credit checks from any party seeking a loan, but some lenders don't require any credit checks at all.
What Business Loans Don't Require a Credit Check?
When they learn that not all loans require credit checks, many business owners and other individuals usually ask, "well, then what business loan types don't require a check?" And while this is a common question, there is no strict answer around what specific loan types don't require checks, and this is for one simple reason: credit checks aren't issued based on the type of loan you're applying for. Instead, whether or not a credit check is required is based on the specific lender's requirements.
Business loans that don't require credit checks are a lot harder to find, and even when you do find one, those lenders will often require you to use another of their services to obtain a business loan through them instead of a credit check. Doing so allows them to have a system that lets them determine whether you will make your payments on time since they won't have access to your complete financial history via a credit check.
Business Loans that Don't Require a Credit Check:
As mentioned, the requirement of a credit check will vary from lender to lender, but there are certainly some loans that are easier to get without a credit check. Specifically merchant cash advances and invoice financing.
A merchant cash advance, or MCA, is a funding option that differs from traditional loan types. This is because a merchant cash advance isn't really a loan. Instead, it's a cash advance option that must be repaid from daily credit card sales. That means that for most MCA providers, you will never need to provide a personal credit check.
Like MCAs, invoice financing options work by having businesses work with their financing providers to provide invoices in exchange for access to cash. In this case, the invoices work as collateral so that your lenders shouldn't need to check your personal credit.
Lenders that Don't Require a Hard Credit Check:
There are several lending options that don't require you to undergo a hard credit check. Among these are Fundid Capital, PayPal Working Capital, and Fundbox.
To qualify for Fundid Capital, you must have $4,000 in recurring monthly revenue, a FICO score of at least 550, a business checking account, and you must have been in business for at least six months.
If you meet these requirements, you may qualify for several loan types, including invoice financing, equipment financing, term loans, receivables purchases, and lines of credit.
PayPal Working Capital
To qualify for PayPal Working Capital, you must have had a PayPal Business or Premier account for at least ninety days. Additionally, you must have at least $20,000 in annual PayPal sales for premier accounts or $15,000 for business accounts. You will have to pay off any existing PayPal Working Capital Loans, and repayments will come out of percentages from your sales.
Fundbox is a line-of-credit provider that requires you to have been in business for at least six months with annual revenue of $100,000 or more to qualify. Further, you must also have a business checking account and a FICO score of at least 600.
Pros and Cons of Having Your Credit Checked for a Business Loan
Now that you've read about business loans and lenders that don't require you to have a hard credit check let's take a closer look at the biggest pros and cons of having your credit checked.
One of the biggest pros of having your credit checked is that you will have a far more comprehensive range of lenders available to you who will be willing to work with you. This will significantly expand your options for business funding for lenders as well as access to qualify for higher limits.
Concerning cons to checking your credit, there is really just one big one: the more you have your credit hard checked, the further down your credit score will fall. And if you already have poor credit, this can make it nearly impossible to obtain a business loan.
Pros and Cons of NOT Having Your Credit Checked for a Business Loan
There are also pros and cons to not having your credit checked for a business loan. Let's look into each of those as well.
If you elect not to have your credit checked, you can still qualify for loans–even if you have terrible credit. And when you obtain this credit check-free funding, you can actually use it to help improve and build back up your credit by making on-time payments. In turn, this can also open you up to more business funding options in the future.
When you choose not to have your credit checked, lenders take on more risk with you, so they may charge higher interest rates if they choose to work with you. Additionally, far fewer lenders tend to accept borrowers without proper credit checks, so your lender options will be significantly lower, resulting in fewer options for funding your business.
Other Funding Options
If you feel the need to work on your credit to improve your confidence in applying for business capital, there are still other funding options that don't require a credit check that you may consider.
Business grants are amounts of money awarded to businesses in need. They don't have any interest rates or need to be returned because they are given freely with no expectation of return. You can join our Grant Match Program to find a grant today.
Crowdfunding is a unique option where you raise small amounts of money from large bodies of people to finance your business needs. Like grants, the money doesn't have to be repaid, and you can make as much or as little as people in your network would be willing to contribute.
Ready to Grow Your Business?
If your business has been operating for six months, generates at least $4,000 in revenue per month, and you have a FICO score of 550, Fundid Capital is the perfect no-fuss financing option for you. Visit us today to grow your business now.