Do business loans check or affect my personal credit?

Two questions come up before applying: will the lender pull my personal credit, and will the loan show up on it? The published sources answer the first part directly. The second part depends on how the loan is set up, so it is a question for the lender.

Does the lender check my personal credit?

BDC says that if there is no security for the loan, bankers look at the company’s cash flow, and also at company management, the industry, whether the project makes sense and the owner’s personal credit score and net worth. The Financial Consumer Agency of Canada adds that lenders use a credit report and score to decide whether they will lend and at what interest rate. So it can be part of a business loan decision.

Consent comes first

The Financial Consumer Agency says that in most provinces you must give consent before a business or individual can check your credit, and that signing a credit application gives that consent. Read the application for any wording about credit checks before you sign. When a lender checks your credit, the agency notes, it creates an inquiry on your credit report. Ask the lender whether the check will happen at application or later.

A personal guarantee links the loan to you

BDC says that without tangible collateral you will generally be required to sign a personal guarantee to obtain a working capital loan. Under the Canada Small Business Financing Program, the program guidelines say a lender can take unsecured personal guarantees up to the original amount of the loan disbursed, and that personal assets cannot be used to secure the loan, subject to the guidelines’ separate rules for a loan that improves personal premises the business runs from. They also say realization on personal guarantees is limited to the amount of the guarantees signed plus interest and legal and other costs.

Questions to put to the lender

• Will you check my personal credit, and at what stage?
• Do you require a personal guarantee, and for what amount?
• Will you report the loan to credit bureaus under my name or only the business’s?

For how a loan can touch your home finances, see whether a business loan affects a personal mortgage.