The level of impact your personal credit has on your ability to obtain commercial finance is dependent on the structure of your business.
Sole Traders
As a Sole Trader running a business as an individual, there is no legal distinction between the owner and the business. Sole Traders are personally responsible for any bills, losses and business expenditure, and as a result this means your credit profiles are considered one and the same.
Therefore, having a good individual credit score as a Sole Trader will likely help in obtaining business credit, and vice versa.
Partnerships
Partnerships work in much the same was as Sole Traders, except all partners in the business will have their credit profiles checked when applying for business credit. As a result, in the event that one or more partners has a poor credit history you may not succeed in obtaining business credit, even if other partners credit files are excellent. This can be a bitter pill to swallow.
Limited Companies
A Limited Company is a type of business entity that is legally separate from its owners and managers (typically shareholders and directors), and has a credit score of its own. This is based on various factors such as the financial history of the business and indicates the level of financial risk the business poses.
However, despite being its own legal entity, in the eyes of the lenders it is not necessarily considered to be the only factor when applying for commercial finance. Lenders often check the credit history of those with key roles in the business, such as shareholders and directors, which can affect the business’s ability to obtain credit.
Even if the business has a good credit score and shows little financial risk, but one or more key players in the business has a poor history of credit, there is no guarantee the application will be accepted.
In all three cases, personal credit of key players within the business counts.
