Does Business Loans Affect Your Credit?

Does Business Loans Affect Your Credit? - The answer to this question depends on several factors, such as the type of business loan, the structure of your business, and whether you personally guarantee the loan or not. Some business loans may affect your personal credit, while others may not.


Here are some general guidelines to help you understand how different types of business loans can impact your personal credit:

1. Business loans that require a personal guarantee: These are loans that require you to use your own credit to get approved, and that make you legally responsible for repayment. Examples of these loans include some business loans and business lines of credit from banks and credit unions, as well as some alternative financing sources like consumer credit cards, home equity loans, or HELOCs. 

These loans will affect your personal credit in the following ways:

  • > They will show up on your personal credit report as debt obligations, which may lower your credit score if you have a high debt-to-income ratio or a high credit utilization rate.

  • > They will affect your payment history, which is the most important factor in your credit score. If you make timely payments, your credit score will improve. If you miss payments, default, or declare bankruptcy, your credit score will drop significantly.


2. Business loans that do not require a personal guarantee: These are loans that only require your business information, such as your Employer Identification Number (EIN), and not your Social Security Number (SSN). Examples of these loans include some invoice factoring, corporate credit cards, and business loans from online lenders. 

These loans will not affect your personal credit in the following ways:

  • > They will not show up on your personal credit report, unless your business defaults on the loan and the lender reports it to the credit bureaus.

  • >They will not affect your payment history, unless your business defaults on the loan and the lender reports it to the credit bureaus.

Additionally, the way your business is structured can also determine whether a business loan will affect your personal credit. For example, if you are a sole proprietor or a partner in a general partnership, you are personally liable for all the debts and obligations of your business. Therefore, any business loan you take out will affect your personal credit. However, if you are a corporation or a limited liability company (LLC), you are not personally liable for the debts and obligations of your business, unless you personally guarantee them. Therefore, any business loan you take out without a personal guarantee will not affect your personal credit.