How Applying for a Business Loan Can Hurt Your Business Credit Score

As you may know, a business credit check is standard operating procedure when applying for any kind of business loan.

However, you may not know that in some cases, simply applying for a business loan can severely hurt your business credit score. How is this possible – and more importantly, how can you avoid this damage? We address both of these below. 

How Loan Brokers Operate

Loan brokers – sometimes called loan consultants, loan coordinators, or any other lofty, unregulated title that they feel like giving themselves – take loan applications and shop them around to lenders nationwide. They tell their clients that this process is smart and strategic, because it allows them to identify the best rates and terms.

But what they typically don’t tell their clients, is that each of these potential lenders conducts a business credit check on the applicant. So if there are 10 potential lenders involved, that means 10 independent credit checks all happening around the same time – and possibly on the same day!

As you might expect, all of the credit bureaus find this alarming. They don’t know – and frankly, they don’t care – that a business is doing some comparison shopping for a loan. All they see is a big RISK warning, which automatically translates into a lower business credit score.

How to Avoid this Scenario

Now that you know how loan brokers operate, the key question is: how do you avoid this scenario?

The answer is straightforward: avoid loan brokers, and only apply to lenders who have the capital and commitment to fund 100 percent of your loan. This way, you can be assured that your application won’t be shopped around from lender to lender – and your business credit score won’t be unfairly damaged in the process.

Other Benefits

In addition to preserving your business credit score, another welcome advantage to steering clear of loan brokers is that you won’t pay any nebulous “application fees” or “professional service costs”. These added costs – which typically run into the hundreds — are totally unnecessary. In fact, they’re often superfluous (i.e. paying for nothing or next to nothing).

What’s more, having a direct relationship with a prospective lender vs. dealing with a loan broker (a.k.a. middleman) allows you to ask questions, get answers, and confirm that you’re comfortable and confident about moving forward. It also means that you’ll have a personal relationship to rely on after your loan is approved (i.e. if you want to increase the amount of funding, etc.).

Learn More 

At Mulligan Funding, we proudly fund 100 percent of our loans, and while we perform a standard business credit check, this only happens once – which, again, is standard operating procedure. Plus, we look at other factors besides credit scores when approving applications (i.e. bad credit is typically not an obstacle), and we NEVER charge application fees of any kind.

Call Mulligan Funding at 855-326-3564 to discuss your financing options today!

*The information shared is intended to be used for informational purposes only and you should independently research and verify.