According to the 2020 Small Business Credit Survey from the Federal Reserve Bank, lenders separate credit scores into the following risk categories:
- Low credit risk – 720 and above personal credit score.
- Medium credit risk – 620 to 719 personal credit score.
- High credit risk – less than 620 personal credit score.
Borrowers with high credit scores will be able to borrow more money at lower rates and for longer terms than borrowers with low credit scores.
Certainly, different lenders have different views about how much effect your personal credit score has on their decisions. Some lenders will look more closely at your personal credit score than others.
For example, banks and credit unions will look at a borrower’s personal credit history more intensely than alternative lenders. Generally, banks and other conventional lenders like to see a personal credit score of at least 650 or higher. You’ll stand a better chance of getting a loan at an attractive interest rate if you have a credit score above 720.
Alternative lenders, on the other hand, have less strict requirements and are more interested in the quality of collateral and the operations of a business: sales, profits and cash flow. For example, alternative lenders will look more closely at the quality of your receivables and inventory to determine their value and not look so much at other parts of your business, such as financial leverage or cash flow from operations.
Investors such as venture capitalists aren’t as interested in your personal credit rating. They are more interested in your business model, its growth prospects and the possibility of cashing out their investment by going public in the future.