It’s standard procedure: to secure critical finance — such as a business loan — a lender will check a borrower’s credit score. If the credit check indicates that the borrower represents a low enough risk, the lender may approve the loan.
But there’s a catch: the simple act of applying for finance can negatively impact your credit score. Apply for too many, and your chances of approval begin to diminish.
But we’ve got good news! At Dark Horse Financial, we offer loan application strategies that avoid doing damage to your credit score. Why are these strategies important? How do they work? Read on to find out.
How do credit applications impact your credit score?
An odd quirk of Australia’s lending system is that applying for credit, whether in the form of a mortgage, a business loan, a credit card, or another type of cash flow product, can have a negative impact on your credit score.
When you apply for these forms of finance, a lender will generally send a formal or ‘hard’ inquiry to a credit bureau such as Experian or Equifax, who then send back your credit report. Every time such a hard inquiry is conducted, your credit score can drop by 5-10 points.
The more finance you apply for, the lower your credit score will go, and the less likely a number of lenders are to approve you. It’s a safeguard that puts a cap on the number of credit cards and loans a person can apply for over a given period.
But this can represent a tricky balancing act for business owners who have an acute need for finance.
The importance of preserving your credit score
Why is a good credit score important for a business owner? There are a few key reasons.
Easier to access finance
The first and most obvious benefit of a good credit score is that it makes it easier to access the finance you need to grow your business. Pretty much every organisation will need an injection of cash at some point — you need to spend money to make money, as the saying goes — and a strong credit score will help to give you the best possible chance of securing these funds.
Better interest rate
A good credit score makes you a trustworthy, low-risk borrower — the sort of customer that every lender wants, and will therefore look to actively attract. If you’re armed with a good credit score, you can expect access to lower interest rates (which means lower business loan repayments!).
More negotiating power
Further to the above, a good credit score gives you borrowing options, which puts you in a position of power. As a highly sought-after customer, you may be able to negotiate better terms on your finance, such as your preferred loan term, a higher loan amount or lower rate or collateral value.
How to apply for business loans without hurting your credit score
Given the credit score risks associated with applying for finance, it’s unsurprising that many existing business owners get a little gun-shy when submitting their business loan application. Unfortunately, this often means that they fail to secure the best loan possible; they instead lock in the first they are approved for.
At Dark Horse Financial, our business lending specialists do things slightly differently, and can save your credit score in the process!
We have worked hard to develop deep relationships with a number of lenders. We are able to request that our lenders avoid the hard inquiries that lower your credit score until they have expressed intent to approve.
This allows us to investigate a complete suite of finance options without negatively impacting your credit score. As a result, you get the very best deal possible, while keeping your credit score intact!
If you’re investigating options for business loans, please feel free to give us a call for more info on how we can help you find the right finance solution without impacting your credit score. And if you happen to already have a bad credit score, a Dark Horse Financial business lending specialist can help with that too!
Can I get an unsecured business loan if I have a bad credit history?
There are unsecured loan solutions for business owners in a variety of circumstances. Some lenders require a Director to have a credit score over 600 – others are more flexible, and credit score isn’t as important to an approval. Defaults on your credit file will rule out some lenders but not others. We often help directors with tax debt and even after a DPN has been issued, as there are still solutions available.
Do I need to pay establishment or application fees on a business loan?
Whilst it’s common for business loan facilities to have an establishment fee, not all business loans will. In the event your chosen loan does have an establishment fee, this will usually be capitalised to the loan, which means it’s added to the loan balance at the time of settlement. In effect, what this means for you is that even if there is an establishment fee on your business loan, you generally won’t pay anything upfront to access your loan funds.
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