Commercial lenders assess your business’s risk and creditworthiness primarily based on your personal and-if you have one-business credit scores. With this in mind, you might think that you always need to have great credit to secure a business loan. Good news-there is no universal minimum credit score requirement for a small business loan, which means you don't necessarily need to have a stellar credit rating in order to get the funding you need.

Ultimately, how good your credit needs to be depends on the type of funding you're seeking and the lender you're working with. Government-funded and traditional lenders typically require high credit scores, while alternative lenders focus more on the health and potential of your business, with less emphasis on credit score.

To help you understand how your credit score can impact the business funding options available to businesses in Canada, we took a deep dive into credit scores in our latest article for Smarter Loans, an online lending resource in Canada.

Read the full article to learn more about:

• The difference between personal credit and business credit
• Why credit scores matter
• The difference between traditional lenders and alternative lenders
• Small business loan options for businesses with low credit scores

When you're applying for small business funding, your credit score is often the primary metric used to measure your business's risk and creditworthiness. But do you actually need good credit to get a small business loan?

The short answer is "yes, but also no, with some exceptions". There is no universal credit score minimum requirement for a business loan. Ultimately, credit score minimum requirements depend on what kind of funding you're seeking and what kind of lender you're working with.

There are two types of credit you'll need to consider when applying for small business funding: personal credit and business credit. Lenders may review both your personal and business credit scores when assessing your application, and many will actually place more emphasis on your personal credit score as a stronger indicator of your fiscal responsibility.

Your personal credit score, sometimes called a FICO score, reflects how you handle your personal credit obligations. It's scored on a scale of 300-900, and is based on a number of factors, including your payment history, amounts owed, length of credit history, type of credit used, and new credit applications. "Bad credit" typically refers to a FICO score between 300 and 600. The minimum personal credit score for a small business loan is usually in the high 600s or low 700s for traditional lenders, and around 550 for alternative lenders.

Business credit, on the other hand, assesses your business's ability to manage credit responsibilities. Business credit scores are based on factors similar to personal credit, but will also consider criteria like the size of your company, industry risk factors, and your relationships with vendors. Dun and Bradstreet is one of the most common sources for calculating your business credit score, providing a score on a scale of 1-100 where anything above 75 is considered "good". The FICO Small Business Scoring Service (SBSS) is also common, with scores ranked between 0-300.

Having a low personal or business credit score doesn't mean that you can't get the small business funding you need. However, it may mean that you might not be able to get financing from traditional lenders, or that you may be approved for a lower loan amount, shorter term lengths, or with a higher interest rate.

Credit score matters because lenders use it to measure the amount of risk you pose. The lower your score, the more risk you present.

A low credit score can impact your ability to get approved for small business funding, as well as your loan terms. Lower credit scores may not disqualify you from all forms of funding, but they will likely lead to higher interest rates, different repayment schedules, and lower loan amounts.

It's important to remember that a low credit score doesn't mean your business is weak. Younger businesses may not even have a credit score because they simply haven't been operating long enough, and if they do, it may be low simply because it hasn't had time to build. In these cases, lenders will look exclusively at your personal credit score when assessing risk.

Different lender types have different minimum credit score requirements. Traditional lenders tend to be quite strict with minimum credit scores, while alternative lenders offer more flexibility. Let's take a closer look at these two types of lenders.

The Small Business Administration (SBA) and other traditional lenders like banks and credit unions will consider both your personal and business credit scores when assessing your application, often with more emphasis on credit score compared to other factors. These lenders also have the strictest approval requirements overall, requiring a multi-page application form and up to three years' worth of financial statements, as well as a business plan.

Traditional lenders have very high minimum credit score requirements, typically starting around 680 or the low 700s.

Alternative lenders emerged after the 2008 recession in response to a greater need for accessible small business funding. These lenders will consider your personal and business credit scores when evaluating your application, but will typically place less emphasis on your credit history than traditional lenders. Instead, your credit score will be considered alongside factors, such as your annual revenue, cash flow, vendor payment history, and other indicators of your business's financial health.

Alternative lenders also have lower credit score requirements, typically starting around 550. This makes alternative business funding available to more small businesses, including those that have lower credit, don't have an existing relationship with a lender, and younger businesses that are still working to build their credit score.

If you have a lower credit score and are unable to qualify for traditional lending options like SBA or bank loans, don't worry-there are a number of funding options available to businesses with lower credit scores. Here are 6 of the most popular:

Merchant cash advances (MCAs) are a non-loan form of financing known as a purchase of future receivables. Available from direct online lenders like Bluerock Options®, MCAs provide a lump sum up front in exchange for a percentage of your business's daily or weekly credit and debit card sales until the advance has been repaid. On days or weeks when your sales are higher, your payments will be higher; conversely, on days and weeks when your sales are lower, your payments will be lower. This makes MCAs especially ideal for businesses that process a high volume of credit card transactions.

Your credit score will be considered when you apply for an MCA, but because repayment is based on sales, cash flow may be a stronger factor.

Learn more about merchant cash advances.

Invoice factoring is another non-loan form of financing called an "asset purchase". With invoice factoring, a lender (called a "factor") will purchase your outstanding invoices and advance your business their value up to 90%. The factoring company will send you the remaining value when your client pays, minus any fees.

The unpaid invoices act as collateral to secure the loan, so businesses with lower credit scores may be more likely to qualify for invoice factoring.

Learn more about invoice factoring.

Alternative lenders like Bluerock Options offer a number of funding options, including MCAs and invoice factoring, as well as more traditional funding options like collateral loans and term loans. Typically, these lenders will have more flexible approval requirements that are friendlier to businesses with lower credit scores, but funding amounts will be lower with shorter repayment terms and higher fees.

Learn more about alternative business funding

Business credit cards provide fast access to working capital, and can even help improve your business credit score if you make payments on time. Make sure you choose a credit card that reports payment history to major credit reporting agencies.

Business credit cards have higher interest rates than other forms of funding, so they are ideal for covering day-to-day expenses or financing smaller projects you know you can pay off quickly in full.

Some local non-profit organizations offer microloans for small projects, with funding amounts as small as $500 up to $10,000. These loans are primarily intended for business owners in underrepresented or underprivileged communities, or those who run socially-responsible businesses. In this case, to qualify for a microloan, your business's goals must align with those of the non-profit.

Equipment financing is designed specifically to fund the purchase of new equipment such as heavy machinery, specialized technology, or store fixtures. The equipment acts as collateral, which may make it easier to secure the loan with a lower credit score.

Whether your credit is low because of your personal financial history or because your business hasn't had a chance to build a good credit score, bad credit can overshadow even the strongest business finances. If you have low personal or business credit, don't panic-you can still get the funding you need to manage unexpected expenses or support your growth. It may be difficult to access financing through traditional lenders, but a number of alternative lending products exist to help businesses that don't meet the strict standards of these lenders.

As an alternative lender, Bluerock Options is able to approve more funding for businesses with low credit or bad credit, including merchant cash advances, online invoice factoring, collateral business loans, alternative small business loans, and alternative business credit.

Establishing and building good credit for your business is vital for all small businesses, regardless of the size or type of business or how long you’ve been in operation.

Many small business owners apply for funding to cover operating expenses or fuel their growth, only to discover that they don’t qualify because of a lack of business credit or poor business credit. It’s especially common for newer businesses to have a thin or non-existent credit profile, which means these busienss owners will need to rely on their personal credit and other personal financing options like credit cards to support their business. Established businesses likely already have a business credit score, but if you have a history of missing or late payments or high credit utilization (or you’ve just never considered your credit score before!), there’s a chance your credit profile may require a little TLC.

Business credit takes time to build and there’s no way to rush the process, so whether you’re starting from scratch or are hoping to improve your current credit score, it’s best to start as soon as possible. We take a closer look at what business credit is and the steps you can take to improve your credit score on Business2Community.

Read the full article to learn more about:

• What a business credit score is
• Why you should build business credit
• How to establish business credit for the first time
• How to build good business credit

Establishing and building credit for your business should be at the top of any small business owner's to-do list (or at least as close to the top as possible-we know business owners have a lot on their plates).

If you're operating a new business, you might not have a business credit score, and you may rely on personal credit cards or assets to support your business. While this type of arrangement may work in the short-term for fledgling businesses, it can lead to significant challenges for older or established businesses when they try to grow. Business credit takes time to build, so it's best to start building it as soon as you can, especially if you have plans to grow or expand your business.

When you first start building your credit for your business, you may need to sign a personal guarantee to open a credit card or apply for a loan from a traditional lender. This means you'll be personally liable if your business can't repay what is owed, and your personal assets may be at risk. Once you establish business credit, you can qualify for a business credit card or traditional loan without a personal guarantee.

Building strong business credit has a number of benefits in addition to safeguarding your personal assets, including:

• Typically better interest rates or terms on funding from traditional and alternative lenders
• Higher likelihood of getting funding approved from traditional and alternative lenders
• Lower insurance premiums
• Positioning your company for more favorable payment terms with new vendors, suppliers, and alternative lenders
• Reducing the number of times you will need to prepay for products or services purchased

Keep reading for our expert advice on how to build business credit for the first time.

The sooner you can start building your business's credit, the stronger your position will be when you are ready to grow. Follow these steps:

Step one in building credit is to-you guessed it-establish credit in the first place. If you aren't sure whether you've already established credit, you can check your credit score (for a fee) at one of the three major business credit bureaus (Dun & Bradstreet®, Experian®, and Equifax®).

If you use a personal credit card for business expenses, chances are you have not yet established business credit. Here's how to establish business credit for the first time:

1. Incorporate as an LLC (limited liability company). The legal structure of your business can significantly impact your business credit. Incorporating as an LLC keeps your personal and business identities separate and distinct. If your business is already a corporation or LLC, you're off to a great start. If your business is structured as a sole proprietorship or general partnership, your personal and business financials are legally the same, and your credit rating will be the same as well.If you use a personal credit card for business expenses, chances are you have not yet established business credit. Here's how to establish business credit for the first time:
2. Get a federal employer identification number (EIN). Your EIN (also known as Taxpayer Identification Number) is a unique nine-digit number assigned by the IRS to identify businesses operating in the United States. It's free to get an EIN.
3. Open a business bank account, and stop using your personal account to support business. Your business account should be opened in the legal corporate name of your business. Once it's open, all business payments should be made from this account.

After you establish credit and open a bank account to start building your credit score, you will eventually qualify for a business credit card. As soon as you can, start making business-related purchases on this card to initiate movement from credit reporting agencies. This is not an invitation to go into debt-you should always pay your bills early or on time.

If you have been paying your vendors and suppliers cash-on-delivery (COD), ask for a credit application and start paying a monthly invoice instead. When appropriate, ask them to report your payment history to the credit reporting agencies.

On-time payments-or better yet, early payments-are critical to establishing good credit. Try not to carry a balance on your business credit cards or vendor accounts, and keep a close eye on your debt-to-asset ratio.

Check your credit score a few times a year. If you spot any errors or inconsistencies, you can file a dispute and ask for corrections.

If you already have a credit score but it's not strong enough to qualify for a business credit card or credit terms from suppliers or vendors, you might be unsure how to proceed. One common method of jumpstarting your business credit is to take out a small loan and pay it off on schedule, or early if possible. A successful round of funding can positively impact your business's credit, and will also put you in a better position to qualify for more funding in the future when it's time to grow.

Getting a small business loan or other financing from a traditional lender is difficult at the best of times. Applicants with strong credit scores are often rejected, so what do you do if you have just established credit or have low credit?

Alternative lenders like Bluerock Options® have different approval requirements than traditional lenders like banks. Instead of focusing on your business's credit score, alternative lenders consider the overall health and potential of your business, which means they can approve more loans than traditional lenders, often in less time. Bluerock Options can fund loans as small as $3,000 in just 24 hours so you can get started building your credit right away.

Building business credit fast should be a top priority for all small business owners. A good credit score offers your business a number of advantages, including:

• Increased likelihood of receiving funding to grow from alternative or traditional lenders
• Better terms on any small business loans
• Greater security for your personal assets

If you're starting from scratch, one quick way to build credit is to access working capital funding from an alternative lender like Bluerock Options. A successful round of funding (that means funding that has been repaid on time) will positively impact your credit score, and may give you the boost you need to fuel your growth.