SoFi

If you’re looking for a small business loan with bad credit or no credit, you could face some extra hurdles. Banks tend to prefer borrowers with good credit scores — typically a personal credit score of 670 or higher — and that can leave business owners wondering how to apply for a business loan if they have bad credit or if their business has no credit history.

Fortunately, there are options for getting business loans for bad credit. Even if you have a personal credit score below the mid-600s, you may be able to find lenders who offer options that can help you start, grow, or expand your small business.

Below, you’ll find a guide to resources that may help you with the process of applying for a small business loan when you have bad credit, as well as different loan options.

What Is a Bad Credit Business Loan?

A bad credit small business loan is a financing option designed for businesses with low credit scores or limited credit history. These term loans often come from alternative lenders, as traditional banks typically require strong credit.

These lenders may rely on other factors, such as cash flow, collateral, or business performance, to assess eligibility. While they can provide crucial funding for operations or growth, bad credit business loans usually come with higher interest rates and fees due to the perceived risk.

Managing these loans responsibly can build credit scores over time, helping businesses qualify for better financing options in the future.

How Bad Credit Affects Your Business Loan Options

When you have “bad” credit, it is possible you may still be able to get a traditional loan. But if so, the interest rate is likely to be higher and the terms less favorable than if your credit fell in the “good” or “fair” range. However, depending on many factors such as the nature of your business, there may be options open to you, even with bad credit.

Credit Score Ranges and Lender Requirements

Every lender is different and has different requirements. But the table below shows some general parameters for what may be available options for getting a business loan with poor credit.

What Is Considered Bad Credit?

Lenders typically view your personal credit score, a rating derived from your credit history, as an important indicator of your creditworthiness. Similarly, when your business builds up a credit history, it may receive a credit score that potential lenders can use to assess whether to lend it money.

If your credit rating isn’t high enough or your business hasn’t been in existence long enough to build up a credit history, potential lenders may evaluate you as having bad credit or no credit, and it may be harder for you to get good terms on financing or even any financing at all.

Understanding what lenders may be looking for can help you figure out your best options for getting business loans for bad credit.

Personal Credit vs. Business Credit

A common question when you’re trying to figure out how to apply for a bad credit small business loan is whether a lender will look at your personal credit score or your business credit score.

Personal credit is based on your individual credit history, including factors such as your record of borrowing and repayment on items like credit cards and loans. It’s connected to your Social Security number (SSN) and includes specific details regarding any credit-related inquiries. Your credit score is used to sum up how creditworthy you are so that potential lenders can assess how risky loaning money to you might be.

Most personal credit scores range from 300 to 850 (although there are a few different scoring models with slightly different scales). Less than 580 is typically considered a poor score.

Business credit scores may be issued by several different companies with different systems. Some (though not all) range from 1 to 100, and higher scores are typically viewed more favorably by lenders. The scores are generally determined by factors that can include payment history, business history, credit utilization ratio (how much the business currently owes divided by its credit limit), and type of industry.

Every lender may have its own rules, but in general, on a scale of 1 to 100, a business credit score of about 76 or above means that the business is likely to be seen as low risk, while a score of 50 or below may suggest higher risk to potential lenders.

Recommended: Small Business Loans for Sole Proprietors

Why Your Personal Credit Score May Matter for a Business Loan

Many businesses start out with a sole proprietor — just one person who owns the business. When the business is new and hasn’t had the chance to build up a credit history yet, potential lenders may look at the owner’s personal credit when they’re assessing the business’s creditworthiness. A majority of lenders will consider your FICO® score (the credit score issued by the Fair Isaac Corporation) when evaluating an application for a small business loan.

While FICO has different versions of its credit scores for different purposes, personal FICO credit scores are generally determined using the following factors:

•   New credit – 10%

•   Credit mix – 10%

•   Length of credit history – 15%

•   Accounts owed – 30%

•   Payment history – 35%

Every personal credit score uses these five categories, but the importance of each can vary depending on the individual. For example, a person with a long credit history will be evaluated differently than someone who is just beginning to establish credit.

Lenders use multiple factors to determine what small business financing options they want to offer you. But even though your credit score is just one factor, lenders may have minimum personal credit score requirements to qualify for loan products. That’s why it can be useful to know what your personal credit score is and whether it’s considered good or bad when you’re applying for a business loan.

Banks and SBA-approved lenders generally require credit scores over 680 to qualify for a small business loan. Alternative lenders, like those who offer options like merchant cash advances or factoring services, may accept lower credit scores (below 600), but you may face higher total borrowing costs due to increased interest and factor rates.

Recommended: What Is Considered a Small Business?

Minimum Requirements for a Business Loans

Even when you have excellent credit, your credit score is not the only thing potential lenders will want to review. And especially when you have bad credit or no business credit history, there are other factors that can be significant in determining whether you might be offered a loan and on what terms.

Time in Business

When considering whether to extend a loan offer, lenders may want to know how long your business has been in operation. Typically, they are likely to require at least one year of business history, though some may accept as little as six months. This can show them that your business is indeed a functioning enterprise.

Annual Revenue Thresholds

Lenders may also have requirements that relate to your business’s yearly revenue. Typically, they’ll want to see from your bank statements that your business is regularly earning money to help them feel confident about its viability. Requirements vary by lender, but often a company may need to show annual revenues of $100,000 or more to qualify for lending products.

Collateral and Personal Guarantees

In some cases, lenders may want extra assurance that loaning to you is not risky. They may ask you to put up collateral – an asset you own with which you can secure the loan. If you default, the lender will be able to claim the asset and recoup some of their losses.

Lenders may also ask you to provide a personal guarantee. This is your pledge that, if your company defaults on the loan, you will personally make good on it.

Bear in mind that both of these tactics involve risk for you. If your company can’t pay back the loan, you could lose your collateral or find that you must pay if back from your personal funds.

How to Apply for a Business Loan With Bad Credit

Getting a business loan with a lower credit score may require a bit more legwork. There are five steps to applying for a business loan with less-than-stellar credit.

Check Your Credit Scores

To find your personal credit history, you can request a credit report from any of the major bureaus: Equifax®, Transunion®, or Experian®. The Fair Credit Reporting Act (FCRA) entitles individuals to one free copy of their credit report per year from each of the three bureaus.

These reports do not include your credit score, however. You can request your FICO® score from your bank or credit card company (it may already appear on your statement or be available online). Or you can create a free account with Experian to obtain the information.

When you’re looking into a bad credit business loan and you want to know your business credit rating, however, digging that up may be more challenging than finding your personal credit rating. The following sources may offer comprehensive business credit ratings, but keep in mind that some are paid services: Dun and Bradstreet®, Experian, and Equifax.

After you’ve gathered your credit reports and scores, you can compare your ratings against potential lenders’ minimum requirements to determine how eligible you might be for financing.

Recommended: What Is the Minimum Credit Score for a Business Loan?

Research Lenders

When you’re applying for a bad credit business loan, researching lenders is crucial to ensure you find the best terms and avoid predatory practices. Different lenders may offer varying interest rates, fees, and repayment conditions, which can significantly impact your business’s finances.

Comparing options can help you identify reputable lenders who specialize in bad credit loans and assess their flexibility in evaluating factors like cash flow or collateral.

Review Terms

Reviewing loan terms when applying for a bad credit business loan is critical to avoiding unexpected financial strain. Terms like interest rates, repayment schedules, fees, and prepayment penalties significantly impact the total cost of the loan and your cash flow.

Bad credit loans often come with higher costs, so understanding these details helps ensure you’re not agreeing to unfavorable terms.

Prepare Documentation

When you’re planning to apply for bad credit business loans, it may help to gather the following documents:

•   Personal and business credit reports

•   Business bank and financial statements

•   Legal documents related to your business

•   Business and personal tax returns

•   Personal identifying documents

•   Business plan

Some lenders may not require all of these documents, but having them all ready in case they’re needed can be helpful. In fact, some lenders may even require additional documentation. And while you’re gathering this paperwork, it can also be a good opportunity to assess your business’s financial status, too.

Recommended: What Are Business Consolidation Loans?

6 Steps That Can Improve Your Chances of Getting a Business Loan

Working toward a higher credit score can take time, but a strong credit score may better your chances of securing a more competitive interest rate on a small business loan. The following steps can help you improve your chances of getting a small business loan.

1. Check Your Credit Reports and Dispute Any Errors

It’s important to monitor your personal and business credit scores to ensure there aren’t any incorrect entries. An error on your credit report could lower your score, making it more difficult for you to secure the financing your business needs.

Check your personal credit reports with the three major credit bureaus (TransUnion, Experian, and Equifax) and report any potential errors directly to the relevant bureau. You can access a copy of each of these credit reports for free once annually.

You may also want to check your business credit history with Dun and Bradstreet, Experian, and/or Equifax. The sooner you can catch and correct any discrepancies, the sooner you can improve your chances of getting approved for funding.

2. Establish Credit With a Business Credit Card or Line of Credit

One way you can work toward building your business credit score is by using a business credit card to make small everyday purchases. To help build credit, it’s important to pay your business credit card bill on time each month and avoid carrying a balance.

If you qualify for it, another option that may help you build business credit is taking out a business line of credit. Like a credit card, a credit line lets you take out available credit to make purchases and then pay the total off each month.

And finally, consider keeping your business credit card or line of credit accounts open, even if you aren’t using them. Canceling a business credit card could impact your business credit score.

3. Keep Your Business Expenses Separate from Personal Expenses

There are a number of reasons to keep your business and personal expenses separate. These include building credit, keeping your records accurate, and streamlining your taxes, as well as for the legal implications. Whether you’re just starting your business or trying to build good credit, these steps can help you establish and maintain a separation between your business and personal expenses:

•   Open and maintain separate business and personal bank accounts

•   Avoid using your business credit card for personal expenses and vice versa

•   Register your business with an EIN number

•   Hire a bookkeeper to manage accurate accounting for your business

4. Maintain Your Personal Credit Score

Can you get a loan with a 500 personal credit score? It may be difficult, which is why it’s important to maintain strong personal credit if it’s at all possible.

Even though your business and personal credit are separate ratings, having a good personal credit score may improve your chances of getting approved for a business loan. When lenders see strong personal credit, it highlights that you’re likely to be a trustworthy borrower. One way to help build and maintain a good personal credit score is to pay your credit card bills and other outstanding debts on time.

5. Take the Time to Build Credit

Trying to figure out how to apply for a small business loan with bad credit and no collateral can be frustrating. Building credit may take a while, but it’s usually worth the effort. That’s because a strong credit history can help you get more favorable rates and terms on future loan products.

For starters, you can aim to work with vendors and suppliers who will report your business dealings to the major credit bureaus. Paying your outstanding balances and invoices on time can also potentially help you establish and build better business credit. But keep in mind that not all companies will report on your behalf, and try to choose judiciously.

If you’re able to wait to apply for a loan, delaying your application could be an opportunity to continue paying down other debts and credit cards or to make any other regular payments that show a stable financial history. By taking the time to build a good track record, you can prove your dependability as a borrower and potentially improve your chances of being approved for more favorable loan product terms in the future.

Recommended: Pros and Cons of an LLC

6. Diversify Your Credit

Creating a good credit mix is an important step in building good business credit. A mix of credit means that you may have varied lines of credit, credit cards, loans, and other products. Once you’ve established good business credit, having a well-rounded credit mix can help you maintain or potentially build your credit score, so long as you’re responsibly making payments on each account.

Another factor to keep in mind is your credit utilization ratio. This is how much available credit you’re using. Maxing out every line of credit can present a negative picture of your business, while using around 25% of your credit typically suggests that you’re a responsible borrower.

Types of Alternative Bad Credit Business Loans

Besides traditional term loans, there are other financing options that could be available to you, even if you have low credit or no credit.

Secured Business or Personal Credit Cards

When you get a secured credit card, you have to provide a security deposit to open the card account. That deposit acts as collateral in the event you default on your payments. This lessens the risk for the credit card company and therefore can improve your chances of getting approved.

If you are looking for a startup business loan with bad credit and no collateral, opening a secured personal credit card or a secured business credit card may be an option to consider. If you make payments on time for a certain period, your creditor may even offer you an unsecured card to help build up your credit rating further.

Recommended: Unsecured Business Loans

Peer-to-Peer (P2P) Lending

Peer-to-peer lending lets borrowers and investors connect directly, eliminating the need for a financial institution to facilitate the loan process. Borrowers who are trying to get unsecured business loans with bad credit or whose business is new may find more financial options to choose from in this category than from other kinds of lenders.

Borrowers and lenders use P2P networks to find each other based on business needs, purpose, and qualifications. Fund transfers and payments go directly through the P2P platform for a simple, manageable process. Because you work with an investor directly, there may be more emphasis placed on your business’s purpose and long-term goals.

Equipment Financing

Equipment financing can help you purchase necessary equipment, machinery, and other items for your business. Equipment financing may be a viable loan option for a business with a low credit score or limited collateral because the equipment itself acts as collateral. In other words, if you default on your payments, the lender can claim the equipment to recoup its losses.

Equipment financing can help you purchase big-ticket items without the financial strain of paying a lot of money all at once. The terms on loans like these may range from a few months to 10 years and generally vary based on the lifespan of the equipment.

Invoice Factoring

A short-term financing option known as invoice factoring lets you sell your invoices to a factoring company, which assumes responsibility for collecting payments from your customers. Typically, B2B companies or operations with irregular billing cycles may turn to this type of financing.

Businesses may use invoice factoring as a quick way to temporarily improve business cash flow or when they need a bad credit business loan. Since the factoring company is responsible for collecting payment from your customers, it’s important to partner with a company that’s reputable and uses fair collection practices.

Inventory Financing

Inventory financing helps a business maintain cash flow while it’s purchasing additional inventory, typically in preparation for a seasonal spike. That new inventory serves as collateral, and lenders offer financing based on a percentage of its value. This can be a good option if you don’t have collateral and need funds to stock up on inventory.

Microloans

Microloans are loans offered by nonprofit and peer-to-peer organizations for smaller loan amounts, typically less than $50,000. If you require just a small amount of financing and don’t qualify for a larger loan, a microloan may help you get the funding you need to cover basic startup costs and other business expenses.

Since newer, smaller businesses often seek microloans and haven’t yet established business credit, it’s helpful to have an established personal credit history to help the lender make its financing decisions.

SBA microloans may also be available and can have advantages like longer terms and better interest rates, but they require a strong credit rating.

Merchant Cash Advance

A merchant cash advance is not actually a loan, but a way for a small business (“merchant”) to get a cash advance for business expenses in return for a portion of its future credit or debit card sales. Merchant cash advance companies purchase a business’s future sales at a discount and, in return, provide quick financing.

A business owner trying to get an unsecured business loan with bad credit may find that merchant cash advances are an option for quick cash, but they do often come with high interest rates and fees.

Additionally, since merchant cash advances are not technically loans, companies that offer them don’t receive the same governmental oversight and regulation as traditional lenders. If you decide to go with this option, research the different merchant cash advance companies carefully to ensure that the one you choose operates in a fair and trustworthy manner.

How to Avoid Predatory Lenders

When you need a bad credit business loan, you may feel under pressure, and unfortunately, unscrupulous lenders may be poised to take advantage. Here are some tactics that may help you avoid becoming their prey.

•   Don’t fall for “everyone accepted” promises. A reputable lender reviews clients and can’t guarantee acceptance. Promises like this typically signal a problem.

•   Step back if the costs aren’t clear. A predatory lender may try to disguise exorbitant costs by making fees and rates unclear or hard to find. A reputable company will provide you with a full repayment schedule before you sign.

•   Avoid excessive fees and demands. If the prices are clear, but involve extensive upfront fees, balloon payment, or a request for an excessive amount of collateral, you may want to look for a new lender.

•   Stay away from high-pressure sales techniques. If a potential lender doesn’t give you written documentation (and time to review it), tries to get you to sign immediately, or tries to dissuade you from talking to a financial advisor, watch out.

The Takeaway

Securing a business loan with bad credit can be challenging, but it’s not impossible. By exploring alternative lenders, leveraging collateral, or working with a cosigner, you can improve your chances of approval.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

Can I get a business loan with no collateral?

Yes, there are some business loan options that don’t require collateral, particularly from online lenders. However, that’s not the case for all small business loans. Some will require collateral to qualify, especially if you don’t have strong credit. There are also other lending options that essentially have collateral built into their structure, including equipment financing and secured credit cards, which you may want to consider if you have no other form of collateral to offer.

Can I get a business loan with bad personal credit?

Yes, there are options for securing business funding, even if you have bad credit. While many lenders look at your personal credit to help determine your eligibility and loan terms, some alternative lenders and online business loans may be available to people who are still building their personal credit. Lenders offering certain other products, like merchant cash advances and invoice factoring, will also often consider individuals with bad credit.

Are any banks easier to get a business loan at than others?

Banks differ in their evaluation criteria. However, since interest rates began to rise, U.S. banks have been tightening their criteria. They have typically expected higher credit ratings, longer time in business, and more income generated every month before they consider offering a term loan.

Are all business loans based on credit scores?

Not all business loans are based solely on credit scores. While traditional lenders prioritize creditworthiness, alternative lenders often consider factors like cash flow, revenue, and business potential, providing options for businesses with lower scores or no credit history. However, stronger credit typically improves loan terms and approval chances.

What is the easiest type of business loan to get with bad credit?

That depends in part on your situation. If your company has significant credit card sales, a merchant cash advance may be one of your easiest and fastest options. Short-term loans from online lenders or microloans may be other options. Just bear in mind that these may be relatively expensive forms of funding.

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q126-039

A business can have its own credit report that reflects the risk profile of the company, similar to a personal credit score, which is like a snapshot of your personal credit profile.

Your business credit score plays a crucial role when you want to expand your business, get loans, and qualify for competitive rates and terms. Lenders look to business credit scores to decide about extending loans. Suppliers and other businesses use them to evaluate whether or not they want to work with a business.

Before applying for any type of small business financing, it’s a good idea to learn about your business credit score. Keep reading to find out how to check your business credit score and how to manage it to your best advantage.

What Is a Business Credit Score?

If a lender is considering extending a loan to your company or if a supplier is deciding whether to work with your business, they may want to see your business credit score. This is a rating that’s compiled based on factors such as your company’s age and size, its history managing credit (including whether it has repaid its debts in a timely manner), and any legal issues. This number gives potential lenders and suppliers a quick way to gauge whether you are likely to be a responsible and creditworthy partner if they decide to work with you.

Business Credit Score vs. Personal Credit Score

Especially if you’re just establishing your business, you may be using your personal credit score when you do business, rather than a business credit score. While it may take some time to build up a business credit score, it can be a good idea to do so in order to stop using your personal score for business. Using your personal score might mean that if your business struggles or fails, your score could be affected. And lenders and vendors may prefer to see a business credit score since it more accurately reflects the creditworthiness of your company, not just of you personally.

Recommended: What Is Business Banking?

Where to Check Your Business Credit Score

A business credit score turns the information on your business credit report into a number that represents the “health” of your business. The scoring range is much different than what you see with your personal credit score. For example, the commonly used FICO® scores range from 300 to 850, but business credit scores typically have different scoring systems..

For business credit scores, there are three main sources: Dun & Bradstreet®, Experian®, and Equifax®. FICO also produces a small business scoring system.

Experian

Experian’s business scoring models range from 1 to 100, with a higher score being the goal. Experian uses a variety of factors to determine a business score, such as a company’s outstanding balances, payment history, overall credit utilization, and trends over time.

Dun & Bradstreet

Dun & Bradstreet PAYDEX® uses a scale of 0 to 100, with a higher score being more favorable. On this scale, scores of 80 or above are generally considered to present the lowest risk to a lender.

Equifax

Equifax has a few different scoring models for businesses, including the Business Credit Risk Score™, Business Failure Score, and Payment Index.

The Business Credit Risk Score indicates how likely it is that a company may incur a 90-day delinquency or charge off over the next year. This score is on a scale of 101-992, and higher scores are generally preferable to lenders.

The Business Failure Score ranges from 1,000 to 1,880 and is used to predict how likely a business is to file for bankruptcy in a 12-month period. The Payment Index is an indicator of a company’s past and current payment performance.

Each report will also provide a suggested interpretation of the value.

FICO

FICO’s Small Business Scoring Service (SBSS) uses a scale of 0 to 300, with a higher score being more favorable. This metric evaluates a number of individual factors and allows banks and lenders to pool the profiles of different businesses, business owners, and other relevant information from various financial institutions.

How Business Credit Reporting Agencies Collect Data

Before you run a business credit score check, you may wonder where this information is coming from. Business credit reporting agencies can use a variety of sources to collect data on your business. Among the most common:

•   Public records: UCC filings, tax liens, bankruptcies, and other legal proceeding, for instance

•   Banks and lenders: Many report to agencies about how businesses repay funding such as business loans lines of credit

•   Your vendors and suppliers: Companies you work with and make payments to may report to the agencies.

•   Utilities: Some report to agencies about business payments

•   Collection agencies: Some third-party collection agencies may report accounts they’re working on

Vendor and Supplier Reporting

As noted above, some of the companies you buy supplies or services from may report to one or more of the credit reporting agencies. If so, they’ll tell the agencies whether your payments are on time, late, or even early. If you’re seeking to build your business’s credit history, you may want to ask potential vendors whether they report to an agency, as this can help establish your business’s track record.

Factors That Influence a Business’s Credit Scores

Payment history can have a major influence on your business credit score, since it shows lenders how likely you are to repay future balances. The length of your company’s credit history also plays a role, as does the amount of debt you currently carry. The type of industry you’re in and the size of your company can also contribute to your business credit profile.

If you do a business credit score check, you’ll see quite a bit of information about your company. Items you’ll find include:

•   Ownership details

•   Company financials

•   Risk factors

•   Account history

•   Any liens, judgments, or bankruptcies

•   Uniform Commercial Code (UCC) filings

As long as they’re properly registered, businesses typically have a credit report. LLCs and even sole proprietors may be able to apply for small business loans based on this financial history.

Recommended: Guide to Business Loans for Bad Credit

How to Get Your Credit Score

When you’re looking for your personal credit report, you’ll notice that there are three primary credit bureaus that lenders use to evaluate your score. Similarly, there are multiple companies you can use to access your business credit score, as well. Here’s an overview of the main ones.

Getting Your Score from Experian

The most basic credit score report costs $59.95 and includes a one-time report summary as well as your score. You can obtain either a one-time report and scores, or you can subscribe to ongoing monitoring. For ongoing access to both your reports and scores, it costs $199 a year.

Getting Your Score from Dun & Bradstreet

Dun & Bradstreet offers a free basic credit score monitoring service allowing you to view your scores, alerts, and inquiries. You can upgrade to paid monthly plans that come with a variety of benefits, such as more scores, detailed legal events, and dark web monitoring.

To get going, you will need a D-U-N-S Number, which is a nine-digit identifying number for your business. D&B may have already created one for your company, but if not, you can obtain one for free in up to 30 business days by going to D&B’s site. You may also pay a fee for an expedited number.

Getting Your Score from Equifax

You can generally get a business credit report from Equifax with prices starting at $99.95 for a single report and $399.95 for a pack of five, and up. Depending on your choice, the information on the report might include such details as a credit summary of your business, public record, and payment trends. You may also see risk scores.

Getting Your Score from FICO

A company’s FICO® SBSS score indicates the creditworthiness of a business and is a metric often used by the Small Business Administration (SBA) when reviewing loan applications but is not usually directly available to the business itself. Since the FICO SBSS score is aggregated from data collected from the other credit bureaus, it can be worth checking in on those credit reports for errors and inaccuracies.

Why Your Business Credit Report Is Important

There are many reasons that your business credit score can be significant – and not all of them are obvious. For example, one important use of your business credit report is to ensure your company has not become a victim of some type of fraud. Identity theft issues you may discover on your credit report include new business lines of credit or credit cards that your company didn’t actually open. Keeping an eye out for any charges or unknown accounts listed on your business credit report can help you spot fraud early and keep your score accurate. Here are a few more reasons it’s key to know how to check your business credit score.

Qualifying for Business Loans and Financing

Your business credit report can play a large role when you’re applying for small business loans and other types of funding for a small business, which is a major reason it’s important to pay attention and actively manage your score. Prioritizing your business credit score may help you access more options if you ever need to secure financing.

A strong credit score can influence whether or not your company will be able to get funding. But it also has the potential to help pave the way to more competitive business loan terms. Both credit card interest rates and loan interest rates can jump significantly if your business credit score flags your company as a greater risk. The amount you’re approved to borrow may also vary based on your business’s credit history.

Negotiating Better Terms With Suppliers

Even if you don’t anticipate needing business financing in the near future, your company’s credit score can affect other areas of business, as well. Because business credit reports are public information, external third parties are allowed to access them without your permission. Vendors may access your credit profile to determine how quickly they should require payment. If they see that you have a strong history of paying loans and invoices on time, you may be granted a longer period of time. On the flip side, a less consistent payment history may mean you receive a shorter window of time to pay vendor invoices.

Recommended: What Is Merchant Services?

How Often You Should Check Your Business Credit Score

Now that you know how you check your business credit score, you may wonder how often it makes sense to do so. It’s generally a good idea to check your business credit score regularly as part of your overall bookkeeping strategy. That means at least every few months or every quarter. If you’re paying for monthly or ongoing access, of course, you can review it more frequently. And if you are in the market for a loan or have reason to be concerned about fraud, you may want to check it additionally at those times.

4 Common Strategies for Improving Your Business Credit Score

While bad credit business loans with no collateral and other options are available, they typically come with unfavorable terms, like high interest rates and frequent auto-draft payments. Working to build a higher business credit score can potentially put you in a better position to qualify for more advantageous loan terms. And while there are a variety of factors that can affect your business credit score, and each bureau has different criteria, here are a few general tips.

Opening Accounts to Build Your Credit History

One way to start establishing a business credit history is to pay your business expenses with a commercial account — not a personal account. Taking out a business credit card can potentially help you build your credit score. It can also help to find out which of your vendors report to the agencies. If some don’t report payments, you may be able to manually add them to increase the trade lines on your account.

Consistently Making Payments

Just as with your personal credit score, paying your bills on time has a large influence on your business credit score. Late payments are listed on your business credit report and the scoring models use that data to determine how likely your company is to pay future bills on time. If lenders see multiple late payments and delinquent accounts, they’ll probably be more hesitant to offer you financing.

Checking Your Report for Accuracy

Make sure there aren’t any errors on your business credit report. One common mistake you may see is the inclusion of information that actually belongs to another company. Also check to make sure the age of your business is correct, since a longer history can contribute to a better score. Finally, look for any red flags that might indicate identity theft, such as accounts in your business’s name that you never opened.

Lowering Your Credit Utilization

Another part of building your business credit is managing your debt well. Many lenders may view large loan balances as a sign of cash flow issues, so it may be wise to try to keep your credit utilization ratio as low as possible.

Ways to lower your business’s credit utilization ratio can include paying down balances or asking for higher credit limits from existing creditors — but not drawing on the funds. Just having that extra available credit can lower your credit utilization and may suggest that your business effectively manages cash flow and debt. Note that some bureaus’ formulas do not weigh credit utilization heavily.

Recommended: Business Loan Calculator

Mistakes That Can Hurt Your Business Credit Score

There are a number of mistakes you could make that would negatively affect your business credit score. Here are a few of the most common.

•  Paying debts late or skipping payments altogether

•  Making multiple applications for credit in a small period of time

•  Using too much of your available credit

•  Not making sure that your vendors are reporting to the bureaus so your business can build history

•  Mixing business and personal finances

•  Not checking your credit reports and addressing errors

The Takeaway

Understanding your business credit score is a process that provides you with a wealth of information. The more you know about your company’s credit history, the more prepared you’ll likely be to apply for financing when you need it. Plus, you can actively work to build your business credit score once you know which areas are important.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

How does a business credit rating work?

A business credit rating is a score created for a business, not a person. Ratings are determined from the business’s credit report — including how many employees, the age of the business, payment history, and amount owed — and shared with those interested in checking out the business’s financial soundness. Potential lenders and partners use a credit rating to help decide if your business will be a good risk.

Who tracks business credit scores?

The major bureaus tracking business scores are Dun & Bradstreet, Equifax Business, Experian Business, and FICO.

Can you find your business credit score for free?

The Fair Credit Reporting Act, which gives you the right to free personal credit reports for major credit bureaus once a year, doesn’t give the same access to business credit. It’s difficult to get ongoing access to all your business credit reports for free, but you might get partial business credit information for free or do a one-time pull of a full report.

How long does it take to build a strong business credit score?

For a new business, it can take from three to six months to get a credit score at all. Building a strong business credit score may take between one and two years.

Does checking your business credit score affect it?

Checking your business credit score is typically considered a “soft” inquiry and is not likely to have much, if any, effect on your score.

Photo credit: iStock/AzmanJaka

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOSMB-Q126-041

If you’re wondering whether small business loans are installment or revolving, the answer is that it depends. When you’re looking to grow your small business, you typically have two main financing options to choose from: installment loans and revolving credit. Installment loans give you a lump sum of cash upfront that you pay back (with interest) in monthly payments. Revolving credit, on the other hand, provides a source of funds you can draw on and repay (with interest) as needed. Each has its own features, benefits, and drawbacks to consider as you research your business financing options.

Below, you’ll find the basics about small business installment loans vs. revolving credit so you can make an informed choice about which financing option makes sense for your business.

Revolving Credit vs Installment Loans

Both types of business loans can provide companies access to the funds they may need. However, they don’t work in exactly the same way. Here’s a quick rundown of how each kind of funding works.

Key Differences Between Installment Loans and Revolving Credit

While both installment loans and revolving credit may offer companies access to funds when they have need of them, there are significant differences between the two that it’s worth looking at more closely.

Repayment Structure

One way these lending products differ is in how you repay the loans.

For an installment loan, you’ll typically get a fixed interest rate. In this case, you would repay the loan in regular installments over a defined period of time. Typically, your payments would be the same each month.

With a business line of credit, you generally pay back (with interest) only the position of the credit line you actually use. The interest rate is likely to be variable, meaning that it is less predictable than a fixed rate. Thus, it may be harder to predict your monthly costs than it is with an installment loan.

Interest Calculation

For an installment loan, you typically pay interest on the entire amount that you have borrowed. That interest is generally calculated and worked into your repayment schedule before you sign the loan.

With revolving credit, your interest is typically calculated only on the amount of your credit line that you have utilized – not on the total amount available to you. With revolving credit, the exact amount you will pay in interest each month cannot be predetermined.

Impact on Your Credit Score

As with any kind of loan, both these forms of funding may have an impact on your credit score. Credit utilization is a factor in your score, and if, for example, you take out a business line of credit and keep the balance on it low, you will have unutilized credit that may help strengthen your credit rating. Making your repayments regularly and on time is also likely to strengthen your credit profile.

Recommended: What Is a Small Business?

What Is an Installment Loan?

A business installment loan is a type of small business financing that provides a fixed amount of capital you can use to cover business expenses. You then pay back the loan, generally in fixed monthly installments that include both principal and interest for the duration of the loan term. For example, if your company takes out a $20,000 loan with a 8.00% annual percentage rate (APR) and a five-year term, your monthly payment would be $405.53.

Qualification requirements for installment loans will vary depending on the lender. Bank and Small Business Administration (SBA) loans tend to have higher requirements in terms of time in business and credit scores, while online lenders may rely more on your sales and revenues to determine your eligibility. If you own a startup but have bad credit, there may be loan options for your business as well.

Recommended: Guide to Business Loans for Bad Credit

Common Types of Installment Loans

Within the category of business installment loans, there are both long-term business loans and short-term business loans. Both are offered by banks, credit unions, and online lenders.

Other popular installment loans for businesses include:

•   SBA loans

•   Microloans

•   Equipment financing

•   Commercial real estate loans

Secured vs. Unsecured Installment Loans

As you investigate how business loans work, another factor to consider is whether the loan is secured. An installment loan can be either secured or unsecured. In the case of a secured loan, you provide the lender with some form of collateral – like real estate or financial assets – to back up your loan. An unsecured loan would not involve collateral.

The potential upside to a secured loan is that having the security may lead a lender to offer you better terms than for a secured loan. However, it does mean that if you default on the loan, the lender may be able to take your collateral to recoup its losses.

Features of Installment Loans

Also known as installment debt, installment loans can give you access to the working capital you need, whether it’s to expand your business or to get through a slow period. The downside to these loans is that they involve an ongoing commitment to regular payments that you’ll have to make for the duration of your loan term.

Here are some features of installment loans to consider.

You’ll Make Monthly Payments

When you sign your loan agreement, you’re agreeing to make a payment (which includes both principal and interest) each month. If you choose a fixed interest rate, the amount you pay will be the same each month. This can make it easier for you to budget that loan payment among your other monthly business costs. Most installment loans come with fixed rates.

If you opt for a variable interest rate, your interest rate can change depending on market conditions. The small business loan interest rates for variable loans typically start lower than the interest rate on a fixed-rate business loan, but they can go up or down over time. This may make it a little more difficult to budget. However, the loan terms typically limit how much the interest can fluctuate from one period to the next.

Recommended: Conventional Business Loans vs SBA Loans

You’ll Get a Lump Sum

Many times, you know you need a certain amount of money to cover a business expense, such as renovating a building or purchasing costly equipment. An installment loan, unlike revolving credit, gives you access to the amount you are eligible to borrow in one lump sum. Having that working capital may allow you to take advantage of business opportunities you wouldn’t otherwise have been able to afford.

You May Get a Tax Deduction

If you’re concerned that taking out a loan would mean you have to pay more in taxes, don’t be. The money you receive as a loan doesn’t count as part of your revenue. And a potential plus is that the interest you pay on the loan may be tax deductible. As always, it’s a good idea to consult with a tax professional about your individual situation and options.

When to Use an Installment Loan

An installment loan might be good for your business if:

•   You need a lump sum upfront.

•   Your small business has a relatively steady income so you can budget for regular repayments.

•   Your small business is well-established and/or you have good credit, meaning you may be more likely to get good loan terms.

Recommended: Can a Personal Loan Be Used to Start a Business?

What Is Revolving Credit?

Revolving credit can provide working capital or credit to cover small business expenses. Typically, if you are approved for a form of revolving credit, you’re approved to use up to a set amount of credit, but you aren’t required to take out the full amount. You only pay interest on the amount you actually borrow. Once you repay the funds, they generally are available to borrow again, up to your limit.

For example, let’s say you get a line of credit of $20,000 for your small business. In the first month, you take out $10,000 but pay back $5,000 that same month. That means that you’ll make payments (including interest) on the $5,000 you still owe, and you’ll still be able to draw on the remaining $15,000.

Examples of Revolving Credit Accounts

There are several forms of revolving credit that you might be able to access for your business. These can include business lines of credit and business credit cards.

Features of Revolving Credit

Like installment loans, revolving credit has both advantages and disadvantages. It’s important to be aware of both when you’re choosing a way to purchase what you need for your business.

You Can Access Funds When and If You Need Them

Sometimes you can’t anticipate exactly how much cash you’ll need to cover business expenses down the road. If that’s the case for your business, it can be helpful to have access to a line of credit that you can draw on if and when you need it instead of receiving a lump sum that you immediately have to start paying back.

Funds Are Always Available (Up to Your Maximum)

With an installment loan, the account is closed once you’ve paid off your balance in full. But with revolving credit, you can generally take out additional funds once you’ve paid down your balance. There’s no need to reapply for more funds after you’re initially approved.

You May Have an Option to Earn Rewards

Credit cards, which are one type of revolving credit, often offer rewards and perks that may help offset what you pay in interest. If you earn points for your transactions, you may be able to redeem those points for cash back or travel rewards. And while high interest rates are a potential negative for credit cards, if you pay your balance in full each month, you shouldn’t be hit by high interest charges.

When to Use Revolving Credit

Revolving credit might be good for your business if:

•   You want to be prepared for future financial needs but don’t require a lump sum right away.

•   You may need access to relatively small amounts quickly to take advantage of business opportunities or pay for shortfalls.

•   Your business could benefit from perks offered by business credit cards. If you have to travel frequently for your company, for instance, a card that offers miles could help defray those costs.

Recommended: How Much Does It Cost to Start a Business?

Installment Loan and Revolving Credit Options

Once you’ve researched the numbers and determined how much money you want to borrow, either through a small business installment loan or a revolving credit line, it’s time to start shopping solutions. Here are a few options you may want to consider.

•   Traditional bank loan: This is a small business loan given by a bank or credit union. Qualification requirements are often stricter than with online business loans.

•   SBA loan: Backed by the Small Business Administration, SBA loans typically come with better rates and higher loan amounts than traditional and online business loans.

•   Business line of credit: Similar to a credit card, a business line of credit gives you a maximum amount to draw on. Once you pay it back, you can generally continue to use the funds up to the maximum credit limit.

•   Equipment loan: An equipment loan is a small business loan used to purchase equipment. The equipment acts as collateral, which can sometimes land you a better interest rate.

•   Business credit card: Business credit cards may be useful for companies that want to take advantage of credit card perks and rewards. Interest rates on credit cards are often higher than on loans, so if you go this route, you’ll want to make sure you can afford to pay your credit card in full each month.

Two options that don’t fall into either category but which may be available for certain types of businesses. These include:

•   Merchant cash advance: A merchant cash advance allows you to receive funding in exchange for future credit and debit card sales. Merchant cash advances technically are not loans and can be one of the most expensive forms of borrowing.

•   Invoice factoring: Invoice factoring allows you to sell unpaid invoices to a factoring company. You get a percentage upfront, and then once the factoring company collects the payment, you get the remainder minus any fees. With invoice factoring, funding is typically fast but can be expensive.

Each option and lender will have different criteria, so do your due diligence when researching which options you will qualify for at the best rate.

Recommended: 15 Types of Business Loans to Consider

Choosing Between an Installment Loan and Revolving Credit

When you’re deciding whether to apply for an installment small business loan vs. a line of credit, for instance, there are a few questions you might consider.

Do you need an upfront lump sum of money? Do you prefer to know exactly what your repayment obligation will be every month? And do you have reason to believe you might get a good interest rate? If the answer to most of these questions is yes, an installment loan may be a good choice.

On the other hand, do you want to have the ability to draw on funds as you need them, but have no immediate need for a significant lump sum? Are you comfortable with a variable repayment schedule? Or would your business be able to use credit card perks or rewards? In that case, a revolving line of credit or business credit card may suit you.

The Takeaway

Installment loans involve a lump sum of cash upfront that must be paid back (with interest) in monthly payments. Revolving credit, on the other hand, provides a source of funds (up to a preset maximum) for a business owner to draw on and repay with interest as needed. Each has its own advantages and disadvantages.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

Is a small business loan an installment loan or revolving credit?

A small business loan is typically an installment loan, in which a lump sum is provided upfront and repaid in fixed payments over a set period. However, some small business financing options, like lines of credit, function as revolving credit, allowing flexible borrowing and repayment as needed up to a set limit.

What types of loans are revolving?

Business revolving loans include business lines of credit and business credit cards. These loans allow borrowers to access funds up to a set limit, repay them, and borrow again as needed. Interest is charged only on the amount used, offering flexible borrowing and repayment terms.

Is an SBA loan considered an installment loan?

Yes, an SBA loan is considered an installment loan. Backed by the Small Business Administration, obtaining one of these loans allows borrowers to receive a lump sum upfront and repay it in fixed monthly installments over a set period. The loan terms, including interest rates and repayment periods, vary based on the specific SBA program.

How does installment loan vs revolving credit affect your credit score?

Both installment loans and revolving credit can offer you the opportunity to strengthen your credit record by making your repayments on time. However, if you have revolving credit and your balance is low, either because you don’t use it or you pay off what you do use right away, this might improve your credit utilization ratio, which is usually considered in your credit score.

Can you have both an installment loan and revolving credit at the same time?

It is possible to have both an installment loan and revolving credit at the same time. For example, you might have acquired key machinery for your company with an equipment financing loan and also have a business credit card for day-to-day expenses.

Photo credit: iStock/PixelCatchers

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q126-040

As a veteran with a small business, you need funding. This may include startup financing or money to purchase property, buy inventory, or pay employees, among other needs.

Small business loans could help, but grants, government funding, and private business options are also available. These funding sources could make a big difference to a veteran-owned business. Read on to learn what’s out there.

Four Types of Small Business Loans for Veterans

The SBA offers support for veterans, including access to loans, business training, and mentoring programs. The SBA also offers a specific loan to small businesses with employees who are military reservists called to active duty. These resources are available to veterans, reservists, active-duty service members, and military families.

To learn details about the educational programs, funding options, and counseling available to veterans, you can contact your local Veterans Business Outreach Center (VBOC).

Here are four loan programs available to veterans.

Recommended: Online Business Loans

1. SBA 7(a) Loan

What is it?

These are government-backed loans of up to $5M that can be used for almost any business-related costs, including purchasing commercial real estate.

Why choose it?

If you need more capital, the SBA 7(a) loan program provides access to funds for a variety of business expenses. Because these loans are backed by the government, SBA loans tend to have favorable terms and rates.

Keep in mind

Application turnaround time is usually 5-10 business days. If you need a relatively small amount of capital in a shorter period of time, you may want to consider an SBA Express Loan.

SBA loans can be competitive. Lenders usually require borrowers to have strong credit, an established business, and some form of collateral to offer.

Recommended: P2P Business Loans

2. SBA Express Loan

What is it?

These small business loans are backed by the SBA and offered by banks, credit unions, and other approved lenders. SBA Express Loans come with an average application review time of 36 hours and offer a maximum loan amount of $500K.

Why choose it?

SBA Express loans can help those in need of immediate funding.

Keep in mind

There are differences to consider between the standard 7(a) loans and SBA Express loans. For example:

The maximum amount you can borrow:

•   Standard 7(a): $5M

•   SBA Express: $500K

The maximum amount guaranteed by the SBA:

•   Standard 7(a): 75% for all loan amounts

•   SBA Express: 50% for all loan amounts

The duration of revolving lines of credit (excluding extensions):

•   Standard 7(a): Not available

•   SBA Express: Up to 10 years

Recommended: Fast Business Loans

3. Military Reservist Economic Injury Disaster Loan (MREIDL)

What is it?

The MREIDL program is offered to small businesses with an essential employee who is called to active duty due to his or her position as a military reservist. These loans provide working capital to cover necessary business payments until the essential employee returns from active military duty.

You cannot use MREIDL funds to:

•   Cover lost income or profit

•   Expand your business

•   Refinance long-term debt

•   Replace typical commercial debt

Why choose it?

If you or a vital employee is on active duty in the military, MREIDL assistance may help support your business. These funds may help prevent losses that would be incurred in the absence of essential employees by offering loans to cover the ordinary and necessary operating expenses of your business.

Keep in mind

If your small business can access capital from non-government sources or fund its own recovery, you could pursue those options first, as in those cases, you’ll be ineligible for MREIDL funding. Additionally, MREIDLs over $50K require the borrower to pledge available collateral. The SBA may accept real estate as collateral when available, but a loan will not be declined solely for lack of collateral if the SBA reasonably believes the borrower can repay.

4. Non-Government Small Business Loans for Veterans

If you’re having trouble qualifying for a government-backed small business loan, there are several lending options. A few to consider include:

•   Loan from an online lender: These lenders tend to have less stringent qualification requirements than physical banks. However, their interest rates may be higher, and borrowing amounts could trend lower.

•   Business line of credit: This is similar to a personal credit card, with a credit limit and interest accrual only on the expenses you have not repaid. Banks and online lenders both offer business lines of credit.

•   Peer-to-peer network: This type of funding matches borrowers with independent investors. Because it doesn’t involve borrowing from a bank or an online lender, a peer-to-peer network may be a good loan option when it comes to small business loans for veterans with either brand-new businesses or credit that needs work.

Recommended: How to Apply for a Small Business Loan in 6 Steps

Small Business Support for Veterans With Disabilities

To further support veterans, the SBA offers the Service-Disabled Veteran-Owned Small-Business Program, which allows eligible veteran-owned small businesses to compete for contracts set aside for disabled veterans.

Eligibility requirements:

•   The company must operate as a small business.

•   The business must be owned and controlled by one or more service-disabled veterans, at a minimum of 51%.

•   One or more service-disabled veterans must be responsible for managing operations and making long-term decisions.

•   Eligible veterans must have a disability connected to their past service.

Businesses must be certified by the SBA through the Veteran Small Business Certification (VetCert) program. For additional information, visit the Office of Veterans Business Development.

How to Get a Small Business Grant for Veterans

Unlike a small business loan, a grant doesn’t have to be paid back. It is essentially debt-free financing that provides the capital you need to start or grow a business.

Almost any business can apply for a grant, but there are some specifically geared toward veteran-run businesses. Given the amount of competition the average federal grant inspires, you may have a better chance of getting one if the pool is limited to veteran business owners.

Grants provide capital that can be used for many purposes, from covering startup costs to hiring employees. You could use the funds to buy equipment or technology that boosts your productivity — it all depends on the grant itself.

Recommended: Small Business Grants: Where to Find Funding

Grants to Help Vets Start a Business or Expand One

Many government small business grants are available to veterans. It’s just a matter of knowing where to look to find the right one for you and your business. Here are some resources to help you get started.

Grants.gov

Grants.gov is a large database of all the federal grants available to anyone, including veterans. You can search by agency, category, or eligibility. Each grant has different eligibility requirements, and only certain types of organizations may apply. It’s important to read the requirements carefully to make sure you qualify.

GrantWatch

Another database is GrantWatch. Here, you can find grants from federal, state, and local government agencies, as well as foundations and corporations in each state.

Your State’s Veteran Business Outreach Center

Most states have web portals with resources for veterans living in that state. For example, California has CalVet, which lists resources for veterans, including self-employment grants for service-disabled veterans. You can also find local VBOCs by zipcode.

How to Get a Small Business Grant for Veterans

Small business grants are available for veterans in many situations, from disabled vets to those starting a brand-new business. While requirements vary, for most, you need to be a veteran, reserve, or a transitioning active duty member of any branch of the U.S. military. Some grants are also open to spouses of military members.

Reviewing Requirements

To apply, first review the eligibility requirements. Pay close attention to deadlines so you don’t waste time filling out paperwork for a grant that’s already closed its window for applications.

Putting Together Your Proposal

Gather the required paperwork, which might include a business plan, key financial statements, and a mission statement. Next, allot plenty of time to write your grant application or proposal. Be prepared to explain how your business started and how you’ll use the funds. Answer honestly, but don’t be shy about singing your company’s praise. This is your opportunity to display what’s unique about your business.

Reviewing and Polishing

Finally, carefully review your application and make sure you include everything required. Proofread your proposal and consider asking a colleague to provide a second set of eyes. You want your application to be as flawless and engaging as possible.

You may also consider hiring a grant writer. This is someone who fills out grant applications for a living. They will likely be more familiar with the process and what reviewers are looking for in an application.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

Does the Veterans Administration offer business loans especially for military veterans?

No, the Veterans Administration no longer provides loans for businesses. However, veterans can borrow up to $500K through the SBA’s Express loan program.

Is it easier or harder for veterans to get business loans?

There is no special barrier for veterans to overcome. However, they will need to present the same creditworthiness and financial profile as any other successful loan applicant to secure funds.

Can veterans use GI Bill benefits to start a business?

Veterans cannot currently use GI Bill benefits to start a business. However, the GI Bill may be used for training to become a business owner or entrepreneur.

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSMB-Q126-034

If you’re in charge of your business’s finances, you’ll want to have a handle on all the various reports a small business can run to ensure its accounts are on the right track.

One report you may find helpful is a trial balance. Prepared at the end of every reporting period, a trial balance is a worksheet that provides a quick accuracy check of your books. If the trial balance shows equal credits and debits, you can use it to prepare your balance sheet. If it reveals an error, you can fix it before you prepare any official financial statements.

Here’s a closer look at what a trial balance sheet is, why you’d use one, and the difference between a trial balance and a balance sheet.

What Is a Trial Balance Sheet?

A trial balance sheet lists the balances of all general ledger accounts of a company at a certain point in time. The debit balance amounts are entered in one column (called debits), and the credit balance amounts are entered in another column (called credits).

Each column is then tallied at the bottom to prove that the total of the debit balances is equal to the total of the credit balances. The goal of preparing a trial balance is to make sure the entries in a company’s bookkeeping system are mathematically correct.

Generally, a trial balance is generated for internal use in a company and isn’t distributed publicly.

Recommended: How to Read Financial Statements: The Basics

How Trial Balance Sheets Work

The double-entry principle in small business accounting means that for every debit, there’s an equal credit. As a result, every credit entered into a company’s account must have an offsetting debit somewhere else. In addition, the total credits from all ledger accounts must equal the total debits from all accounts.

A trial balance moves all credits and debits into one spreadsheet so that someone can make sure that everything lines up. If it does, the transactions posted in ledger accounts in terms of debit and credit amounts are correct. If it doesn’t, some work may be required to get them aligned.

The key difference between a trial balance and a general ledger is that the ledger shows all of the transactions by account, while the trial balance only shows the account totals rather than each individual transaction.

What Trial Balances Include

Typically, a business initially records its financial transactions in bookkeeping accounts within the general ledger. Because of double-entry accounting, these transactions are recorded as both a credit and a debit to corresponding accounts. For example, if you have any type of small business loan, you credit accounts payable (liability account) and, though it may seem illogical, you also need to debit the cash account (an asset).

General ledger accounts typically include:

•   Assets

•   Equity

•   Income

•   Gains

•   Liabilities

•   Expenses

•   Losses

The trial balance is created by tallying all of the debits and credits from each account, then placing these sums in the debit or credit column for each account.

Something to note: If any adjusting entries were entered in the general ledger, such as a doubtful account allowance, you would also include that in the trial balance. The worksheet should show the figures before the adjustment, the adjusting entry, and the balances after making the adjustment.

Recommended: Net Present Value: How to Calculate NPV

Undetectable Errors in a Trial Balance

A trial balance is designed to provide a quick way to ensure that debits and credits match up. If they don’t, there’s an error somewhere. However, a trial balance may not show the following types of errors:

•   Reversal

•   Omission

•   Original entry

•   Commission

•   Principle

Errors of Reversal

When using double-entry accounting, there’s a credit and a debit of the same amounts. Sometimes, however, a credit is entered incorrectly as a debit or vice versa. A trial balance won’t reveal this type of mistake.

Errors of Omission

If a transaction wasn’t entered into the accounting software, it won’t appear in the trial balance.

Errors of Original Entry

A trial balance won’t tell you if an incorrect amount was entered as both a credit and a debit.

Commission Errors

This happens if the wrong account is debited or credited and is often a mistake caused by oversight.

Principle Errors

This is another mistake that occurs when the wrong account is debited or credited. Rather than being an oversight, however, it may be a mistake in understanding accounting principles and which expenses or revenues should be categorized under which types of accounts.

Recommended: What Is Invoice Financing?

Trial Balance Sheets vs Balance Sheets

While both a trial balance and a balance sheet look at debits and credits and must find equilibrium between the two, there are some differences between these two financial reports.

Recommended: Business Cash Management, Explained

Examples of Trial Balances

A trial balance lists all of the company accounts, along with the balance of credits and debits for each. Once all of the accounts and values are complete, you add up the total in each column. Here is an example:

If the totals match, as they do in the above example, there are no obvious errors in the ledger. If the totals are different, however, it tells you that something is wrong. The next step is to locate the problem in the ledger and correct it before you prepare any other financial statements, such as a balance sheet, income statement, or cash-flow statement.

Recommended: How Does Trade Credit Work?

Preparing a Trial Balance

Most accounting software systems can generate a trial balance at the click of a mouse. The system will also update your trial balance with each entry you make. However, it’s not hard to create a trial balance yourself. Simply follow these steps:

1.    Create a table with three columns titled (from left to right): Account Name, Debits, and Credits. An optional fourth column (placed to the left of Account Name) would be Account Number.

2.    Use the company’s chart of accounts to locate all of the account names, and list them in the Account Name column (if desired, include account numbers in the appropriate column).

3.    Go to each account and add up all of the debits and credits during the accounting period. Subtract the smaller number from the larger number, and place the remainder in the appropriate column. For example, if the cash account had a total of $6,000 in debits and $5,000 in credits, you would place $1,000 in the debits column.

4.    Total each column, and put the totals at the bottom. If they are the same, your trial balance is balanced.

Recommended: How Business Bank Accounts Work

The Takeaway

A trial balance is a worksheet that helps ensure your company’s bookkeeping is accurate, up to date, and balanced. It’s a great report to use internally before creating your balance sheet. Unlike a trial balance, a balance sheet is an official financial statement that will be shared with external parties.

If you apply for a small business loan, for example, the lender will likely examine your balance sheet to see how much cash you have on hand, how much money is tied up in assets, and how much debt you currently have. They want to make sure that your business has enough available cash to manage your loan repayments.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What goes on to a trial balance sheet?

A trial balance sheet includes all accounts in the general ledger, including assets, equity, revenues, gains, liabilities, expenses, and losses. It lists the description of the account and its final debit or credit balance. These balances are then totaled to arrive at total credits and total debits to make sure they are equal.

How are trial balance sheets and balance sheets different?

A trial balance sheet is an internal document that’s often the first step in creating a balance sheet. It summarizes the closing balances of the accounts in the general ledger. A balance sheet, on the other hand, is shared externally and summarizes the company’s total liabilities, assets, and shareholders’ or owners’ equity.

What is the point of a trial balance?

A trial balance is prepared at the end of every reporting period to ensure that the entries in the company’s general ledger are correct. It can be a helpful tool to verify mathematical accuracy before performing more in-depth financial analysis.

​​Photo credit: iStock/deepblue4you

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSMB-Q126-035