How Does Your Personal Credit Affect Business Loan Prospects?

Just as your personal credit history determines whether you qualify for a personal loan, it also affects whether you can get a business loan. The three main things lenders look for on your credit report are:

• Late payments
• Missed payments
• Bankruptcies

These problems can take seven to ten years to cycle off of a credit report. As long as there's no pattern, the occasional late payment is no big deal in the eyes of most lenders — we've all mailed checks a day or two late.

But missed payments and bankruptcies are a different story. These black marks on your credit report must be explained. Lenders are typically sympathetic to medical bankruptcies — if your child needed a kidney transplant and you filed Chapter 13 to save your house, most banks won't hold that against you.

Other circumstances are best explained in a letter accompanying your loan request. Don't just explain what happened. Let your prospective lender know what steps you've taken to assure it won't happen again. Typically, banks won't consider conventional loans or SBA guaranteed loans to applicants with a bankruptcy in the past three years.

That doesn't necessarily mean you shouldn't try. Banks are your best financing source, but there are alternatives, including revolving-loan-fund programs and micro-loan programs available through certified development companies. Some of these programs, however, require you to have been turned down by a bank first before you can apply.