Does a Business Loan Affect My Personal Credit Score?
Finn Murphy
Relationship Manager · Apr 28, 2024 · 6 min read
Whether a business loan affects your personal credit score depends on three things: how the lender conducts the credit check, whether you gave a personal guarantee, and whether the business meets its repayment obligations. Here is the full picture for each scenario.
Ready to compare your options?
Check your eligibility across 100+ UK lenders in 60 seconds.
Credit checks and their impact
All business loan lenders conduct a credit check. Most conduct a soft search on your personal credit file at the eligibility stage, which does not affect your score and is not visible to other lenders. When you proceed to a full application, a hard search is conducted, which is recorded on your credit file and is visible to other lenders for up to 12 months. Multiple hard searches in a short period can reduce your credit score.
The business credit check is conducted on the company's file rather than your personal one and does not affect your personal score. However, many lenders also conduct a personal credit search on each director, even for limited company loans, which is why minimising hard searches by using a broker's single application model is valuable.
Personal guarantees and credit reporting
If you gave a personal guarantee and the business makes all payments on time, the loan does not typically appear on your personal credit file (limited company debt is normally on the company's file, not the director's). However, if the business defaults and the lender calls in the guarantee, enforcement action against you personally will appear on your personal credit file.
For sole traders, the business and personal credit files are one and the same. All business loans, whether made on time or not, are recorded on the sole trader's personal credit file. This makes timely repayment particularly important for sole traders, as the business's payment record directly affects their personal creditworthiness.
"The credit impact of a business loan on its directors is often misunderstood. For limited companies, the key risk is not the loan itself, but what happens to the personal guarantee if the business runs into difficulty."
- Finn Murphy, Relationship Manager
Frequently Asked Questions
Will applying for a business loan hurt my credit score?
A soft-search eligibility check has no impact. A hard search at full application may reduce your score by a small amount temporarily. Multiple applications to different lenders in quick succession compound this effect, which is why applying through a broker who submits once to multiple lenders is beneficial.
The bottom line
Spark Finance uses soft searches at the eligibility stage to protect your credit score while you explore options. Start at apply.sparkfinance.co.uk.
Check your eligibilityAbout the author
Finn Murphy
Relationship Manager
Finn is a Relationship Manager at Spark Finance focused on asset finance and equipment funding for UK businesses. He has placed hire purchase, finance lease, and operating lease facilities across construction, healthcare, and manufacturing sectors.
