Checking your eligibility for a business loan usually involves a soft credit search, which does not affect your credit score. However, if you go ahead with a full application, the lender will normally run a hard credit search, which is recorded on your file and can have a small, temporary effect on your score.
What Is the Difference Between a Soft and Hard Credit Search?
A soft search lets a lender see an overview of your credit history to judge whether you are likely to be accepted. It is only visible to you, so other lenders cannot see it and it has no effect on your score.
A hard search is a full check carried out when you formally apply. It stays on your credit file for 12 months and other lenders can see it.
How Much Does a Hard Search Affect My Credit Score?
A single hard search usually has only a small effect, and your score should recover over time as long as you keep up with your repayments. MoneyHelper, the government-backed money guidance service, has more on how credit checks affect your score.
The bigger issue is making several applications in a short space of time. Lots of hard searches close together can suggest to lenders that your business is struggling for money or being turned down elsewhere, which can make approval harder.
Will a Lender Check My Personal or Business Credit File?
Often both. Limited companies have their own business credit file, and lenders will check it. But for smaller businesses, sole traders and partnerships, lenders usually check the owner’s or directors’ personal credit history too. This is especially likely if you applying for a loan with a personal guarantee.
It is worth checking your personal credit report for free before you apply, so you can spot and fix any mistakes. If a credit reference agency won’t correct an inaccurate entry, the Information Commissioner’s Office explains what you can do next.
Does Acceptance Check My Credit Score?
Acceptance does not carry out credit checks. However, our lending partners may run personal and business credit checks to decide whether you are eligible. This starts as a soft search, so you can see what you could borrow without affecting your credit score. A hard search only follows if you choose to accept an offer.
What Should I Do If My Business Loan Application Is Refused?
If your application is turned down, avoid applying again straight away, as another hard search soon after a refusal can make things worse. Instead, ask the lender why you were declined and check your credit report for anything that might be holding you back, such as missed payments or out-of-date details. Once you understand the reason, you can work on improving it or look for a lender whose criteria are a better fit for your business. Our guide Do I Need A Good Credit Score To Get A Business Loan? explains what else lenders look at.
How Can I Protect My Credit Score When Applying for a Business Loan?
Use eligibility checkers that run soft searches before making a full application, and avoid applying to lots of lenders at once. Using a broker can help here, as they can match you with lenders that are likely to accept you before any hard search takes place.
Once you have a loan, making every repayment on time is one of the best ways to build your business’s credit history, which can help you get better rates in future.
See also: Can I Get a Business Loan With a CCJ?