Will applying for a PPP loan affect my credit score?

In this 3-minute read:

  • For SBA EIDL loans, a credit check is required
  • For PPP loans, no credit check is required under these special circumstances
  • Your lender may choose to perform a credit check for a PPP loan to verify credit and/or to confirm identity

With millions of small businesses scrambling to get emergency PPP funding during the COVID-19 crisis, it’s understandable that many business owners are concerned about whether getting one of these SBA loans will potentially impact their credit score or rating.

We might posit that if your business is in danger of going under due to being closed by state directive under COVID-19 restrictions, and/or if your customer base is subject to shelter-in-place orders, the potential impact on your credit score from a credit check during the application process is likely not the most urgent problem you’re dealing with.

However it is a legitimate concern for some people, so let’s go over the basics.

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SBA EIDL loans require a personal (and possibly business) credit check

If you are applying for one of the SBA’s Economic Injury Disaster Loans or grants, you can be confident that your credit will be checked.

For EIDL loans, a personal credit check is required, plus your business credit will also be checked for loan amounts over $200,000 if you are anything other than a sole proprietor.

SBA PPP loans do not appear to require a credit check

Since the Paycheck Protection Program is intended to get emergency business funding into the hands of as many of America’s struggling business owners as quickly as possible, the SBA has apparently temporarily suspended the requirement of a credit check for this type of loan.

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Typically, the SBA 7(a) loan program, which technically the PPP falls under, does require an examination of your credit before you can be approved. However, there does appear to be an exception in this particular case. 

Regardless, some business owners have reported that their lender has performed a credit check during their PPP loan approval. Let’s go over why that may be the case.

PPP lenders may potentially perform a hard credit inquiry as part of the approval process. Will this hurt my credit score?

We have gotten reports from some small business owners who have reported that their lenders have performed a “credit pull,” “credit check,” or hard credit inquiry as part of the Paycheck Protection Program loan application/approval process. 

good vs poor credit graph for PPP application

This can be for several reasons, but the most likely are that lenders are wary of any bad actors trying to take advantage of the current “panic” to apply for fraudulent loans, and a credit inquiry can be helpful in confirming your identity.

It also may simply be part of your lender’s standard loan approval process. The SBA allows a certain amount of flexibility among their approved lenders, so the documents required for a PPP loan and/or the loan approval process (including whether or not they perform a credit check) may be different between various SBA-approved lenders.

If you are concerned about whether your lender will perform a hard credit check as part of their PPP loan approval process, please ask them for specifics. Some lenders do, and some don’t.

Credit inquiry basics: hard inquiry vs. soft inquiry

It can be helpful for people to understand the difference between hard and soft credit checks when discussing the benefits or potential impacts of each type.

Hard credit inquiry

A hard inquiry, or hard “credit pull” is the term that describes a lender you’re applying with reviews your credit report as part of the process of loan approval.

A hard inquiry does appear on your credit report, and it will likely impact your credit scores. Depending on the source you read, you can expect a single hard credit inquiry to lower your credit score (temporarily) by approximately 3 to 7 points. If your credit score at the three main credit reporting agencies is typically “excellent” or “exceptional” at 800 or above, you can probably afford to lose a few points.

If your credit score typically hovers somewhere lower, near a tier that may influence lenders to either approve or deny your requests for credit, you may be more concerned about any “hard” inquiries made by your PPP lender.

You have to give your permission for a lender to perform this type inquiry, and you should also be reviewing your credit reports a couple of times a year to make sure there are no unauthorized parties applying for credit in your name without your permission.

Again, though, if you are in such bad need of funding that you’re applying for a PPP loan, you are likely not overly concerned about potentially losing a few points from your credit score, compared to the serious emotional, financial, and social impacts of losing your business.

Soft credit inquiry

A “soft pull” or a soft credit inquiry or check is the term for when you check your own credit (which you can do as many times as you like without harming your score) or when a credit card company or lender checks your credit in order to “preapprove” you for one of their offerings.

“Soft” credit checks or inquiries do not affect your credit scores.

There’s still time to apply for your PPP loan, but don’t wait! The extended deadline for application is August 8, 2020

If you haven’t applied for your PPP loan and you determine it’s right for you, there is still time. Talk to your lender and get your application submitted ASAP.

Sign up for your Womply Free account and we’ll keep you updated on new funding opportunities. Customer relationships thrive when local businesses and consumers are connected through Womply data and technology.

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