When owners ask about funding, they often don’t understand what the inquiries could do to their credit. They want to look at their options, but they’re worried that applying will hurt their business credit score.
I explain that it depends on the kind of inquiry and where it appears. We also talk about who will receive the application. That matters when an owner is working with several brokers, each of whom may be working with several institutions.
You should be able to compare financing without guessing about any of this.
7 Questions To Ask Before Applying
1. Are You Checking My Business Credit, My Personal Credit, or Both?
Start here, because the words “business credit check” don’t tell you enough. Ask whether the provider will look at the company’s credit, your personal credit, or both. If there are several owners, find out whose information it needs.
Experian explains that business and personal credit scores are separate. But applying for a business loan doesn’t mean the lender will only look at the business. Ask which credit reporting company the provider uses. You want to know which report will be checked, rather than assuming a check appears everywhere.
And ask about a personal guarantee separately. Having someone review your personal credit is different from agreeing to be personally responsible for repayment.
2. Is This Step A Soft Inquiry or a Hard Inquiry?
Some owners think every credit check lowers their score. It doesn’t. A soft inquiry doesn’t affect your personal credit score. A hard inquiry can. Checking your own consumer credit report won’t lower your score either. The Consumer Financial Protection Bureau explains how these inquiries differ.
The question to ask is about the form in front of you: “If I submit this, will it trigger a hard pull?”
Read the authorization before you sign. If it doesn’t match what you’ve been told, ask the provider to explain the difference. Keep a copy of the answer and the paperwork. You’ll have something to refer to if questions come up later.
3. Could a Soft Check Be Followed By a Hard Check?
At Excel Capital Management, we use soft pulls in our process. Some traditional financing programs still involve a hard inquiry by the financing institution, and we disclose that before applying. It depends on the program.
That is why I wouldn’t stop at asking whether the initial check is soft. Find out what happens next. Who runs the check at the institution? Is another inquiry required before funding? At what point would that happen?
A hard inquiry can be visible to others reviewing that report. However, it shows that credit was checked, not that money was funded. An institution cannot rely on the inquiry alone to determine whether you’ve borrowed elsewhere. Tell it about any financing you’ve accepted and applications that are still pending.
4. Who Else Will Receive My Application?
A problem I often see is owners working with multiple brokers without knowing how many institutions each broker approaches. An owner may think they’re comparing three sources of funding when those brokers are sending the application to some of the same companies.
I usually suggest starting with one or two brokers you’ve researched. Read their reviews and look at their online reputation. Ask how they are paid, and pay attention to whether they listen. Someone who doesn’t understand what you need can bring back offers that waste your time.
That doesn’t mean one broker guarantees one credit check. Ask where the application may go and which institutions may run their own checks. Keep a list of submissions. If you decide to work with another broker, explain what’s already in progress and ask how they handle overlap.
5. Will These Inquiries Receive Rate-Shopping Treatment?
Owners also ask about the effect of shopping around. They may have heard that several applications count as one inquiry if they happen close together. There are circumstances where that applies, but it isn’t a rule for every kind of financing.
FICO’s rate-shopping explanation covers mortgage, auto, and student loan inquiries. Eligible inquiries can be grouped within 14 days under older FICO versions or 45 days under newer versions. The individual inquiries can still appear on the report even when they count as one for scoring.
Don’t assume a business-finance application gets that same treatment. Ask whether the particular product and scoring model qualify. If the provider can’t establish that, don’t base your application strategy on it.
You can still compare requirements, fees, and likely terms before deciding where to apply. Shopping should help you understand the offers, not leave you wondering who has checked your credit.
6. How Long Does an Inquiry Matter?
There are two dates to keep in mind. FICO says hard inquiries can stay on a consumer credit report for up to two years, but its scores consider only inquiries from the preceding 12 months.
An inquiry can therefore remain visible after it stops counting in a FICO score. That doesn’t promise a particular score increase. Other information on the report may have changed too.
Our guide to hard-inquiry timelines includes a calculator for estimating those dates. It won’t tell you what your score will be or whether a lender will approve the application.
7. Does the Financing Fit The Business After the Credit Check?
Another mistake is asking how much you can get approved for before figuring out what you can comfortably repay. A quick approval doesn’t make a payment affordable. Neither does a low advertised rate tell you everything about the cost.
Before applying, decide exactly what the money will fund. Gather current financial statements and work through a cash forecast, including a slower sales month. What payment could you still cover then? The SBA’s preparation checklist also asks owners to explain their funding needs and repayment plans, and suggests questions about qualification requirements.
Tell the broker which programs and terms you want. If you’re looking for a line of credit, say so. If a proposed payment schedule won’t work, explain why. A broker should be willing to discuss those needs and tell you when the options are limited.
Compare total borrowing cost, fees, payment frequency, repayment term, collateral or personal guarantees, and early-payoff terms. Ask what you’ll actually receive after deductions and when the first payment is due.
Take a hypothetical shop owner seeking $40,000 for inventory. A soft-check offer might sound attractive, but if repayments begin before the inventory sells, the owner still needs cash to cover them. The credit check is only one part of the decision.
My advice is to plan, plan, plan. Time is your friend when working on a deal. Use it to check who you’re working with, explain what you want, and decide what the business can repay. Rushing through those steps because a bill is due makes the decision harder.
Nathan Abadi is the founder and CEO of Excel Capital Management, based in West Palm Beach, Florida. His work focuses on business funding, underwriting, and deal structure. Company updates on X: @excelcapitalmgt.
