What Is a Soft Credit Check for a Business Loan?

There’s a lot of jargon in business financing and it can be difficult to feel like you’ve got a solid understanding of every term. The difference between a hard and soft credit check can be one of the more confusing things to learn.

So what is a soft credit check, and how does it impact your business credit?

Let’s break it down and explore how this knowledge can help you navigate the challenges of business financing successfully.

What Is a Soft Credit Check for a Business Loan?

A soft credit check for a business loan usually means the lender is pulling a small overview of your personal credit history. It allows the lender to gauge your creditworthiness without the impact to your credit file that comes with a hard check. In general, soft credit checks of personal credit won’t impact your FICO score.

A hard credit check for a business loan, on the other hand, could include a check on your personal credit, your business credit or both. For personal credit, a hard credit check means the lender has requested access to your complete credit file. A hard credit check on your personal credit can impact your score.

When it comes to your business credit, things get a little more complicated. Anyone is able to pay and access your business’s credit report. They don’t need explicit consent like lenders do when conducting a hard pull on your personal credit. So there’s no true “soft check” when it comes to business credit. However, not all of the business credit bureaus take inquiries (hard or soft) into consideration when calculating your business credit score.

How Does a Soft Credit Check Differ From a Hard Credit Check?

If a business lender checks your personal credit, soft and hard inquiries will have different impacts. A soft credit check will only be visible to you in your credit report and won’t affect your credit score. With a hard credit check, the lender gets access to your full credit history and their inquiry will appear in your credit history.

A hard credit check can temporarily lower your score, but it will typically recover quickly. Be wary of applying for too much credit too fast, as multiple hard inquiries in a short period of time can damage your score.

If a business lender checks your business credit, the impact will depend on how the credit bureaus factor credit checks into their credit scoring model. When it comes to checking business credit, there isn’t a distinction between a hard and soft pull. Some of the business credit bureaus don’t factor in credit checks, while others do. However, keep in mind that checking your own business’s credit usually won’t impact your business credit score.

Do Credit Checks Lower My Business Credit Score?

Personal credit checks for business loans will not lower your business credit score as your personal and business credit are separate. The only exception to this is the FICO Small Business Scoring Service, which considers both your personal and business credit history.

Business credit checks, on the other hand, may impact some business credit scores — but not others.

Not all of the major business credit bureaus consider inquiries when calculating your business credit score. To see if a credit check may affect your score, you’ll need to have a better understanding of how each bureau calculates your score.

You should also keep in mind that many of these bureaus offer other ratings that may take different information into account.

Dun & Bradstreet. Dun & Bradstreet’s PAYDEX score only considers a business’s payment trends, so hard credit checks should not affect your Dun & Bradstreet score.

Experian Business. Experian Buisness’s Intelliscore Plus, is calculated using multiple factors including payment history, public records such as liens or bankruptcies, years in business, and business size — but not credit inquiries. Therefore, a credit check shouldn’t have an affect on your Experian Business credit score.

Equifax Business. Equifax Business does use credit inquiries to calculate your business credit scores. A hard inquiry may have an impact on your business credit score.

FICO Small Business Scoring Service (SBSS). The FICO SBSS is different from the other bureaus in that it considers the personal credit history of the owner as well as the credit history of the business. Hard inquiries on personal credit and business credit may impact this score.

Can I Get a Business Loan Without a Credit Check?

The odds of finding a true no credit check business loan are low. Most lenders will run some type of credit check to determine your and your business’s creditworthiness. This information helps them determine approval, rates and other terms.

You may, however, find lenders that only perform a soft credit check. These lenders may focus more on things like annual revenue and time in business when determining approval. Such criteria can help these lenders approve borrowers with less-than-perfect credit who may have been turned away from more traditional financing sources such as banks and credit unions. Be sure to do your research and explore all your options when looking for the best lender.

Here’s How Other Business Owners Protect Their Credit

“Lenders often look at both your personal credit history and any established business credit you have. So, keeping your personal score healthy is a big advantage. Make sure you pay your personal bills on time and keep your credit card balances low. This goes a long way in showing lenders you’re a responsible borrower.”

Paul Chow, CEO & Co-Founder
Design Dynamics

“In my experience, the best thing to do is to know your credit before applying for any financing in the first place. By being aware of your credit rating, you’ll lower the chance of being denied for financing and having to reapply with a lower score in the future. I’ve also tried to keep my overall credit utilization low, to decrease the impacts that a credit inquiry may have.”

Courtney Morgan, Founder
Counseling Unconditionally