Will my PPP lender pull my credit report? (some lenders might)

• For PPP loans, it seems no credit check is required under these emergency circumstances
• For SBA EIDL loans, a personal credit check is required, and a business credit check in some cases
• Your PPP lender may or may not choose to perform a hard credit check to verify credit worthiness and/or to confirm identity before approving your PPP loan

IMPORTANT UPDATE FOR 2021: Congress has approved an extension of the PPP loan program. Applications may be submitted to SBA until May 31, 2021, including “second draw” PPP loans for businesses that received PPP funding in 2020. 

Some small business owners are concerned about whether applying for a Paycheck Protection Program loan or another COVID-19 related SBA loan will require their lender to pull their credit report, which could impact their credit score or rating.

The short answer is that under normal circumstances, the SBA typically requires a credit check verifying the borrower’s good credit before issuing any loan.

However, during the current crisis, the SBA has relaxed its rules and requirements in several areas, and appears to not require a credit pull for PPP loan approval. Let’s look a little more closely at when your lender might examine your credit history and when they might not. 

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SBA PPP loans do not appear to require a credit check currently

Since the Paycheck Protection Program was designed to fund as many of America’s struggling businesses as quickly as possible, the Small Business Administration seems to have temporarily removed the requirement of a credit check for PPP loans

Normally, the SBA 7(a) loan program under which the technically the PPP loan is administrated requires a hard credit check before approval of the loan. But the SBA has suspended that requirement as far as we can tell. 

Regardless, some business owners have reported that their lender has pulled their credit report during their PPP loan approval. Let’s go over a couple reasons for that.

PPP lenders might pull your credit report during the application / approval process. Does this hurt your credit score?

Your PPP lender might take a hard look at your credit for several reasons. It may simply be part of your lender’s standard loan approval process. 

Since the SBA typically doesn’t issue loans but rather works through a network of private lenders, they allow a certain amount of flexibility in the processes and documents any particular lender may require.

This means that the documents required for a PPP loan and/or the loan approval process (including whether or not a lender pulls your credit) may vary between different SBA-approved lenders.

In addition to your lender potentially performing a credit check as part of their normal process, they may also be concerned about fraudsters trying to take advantage of the current “panic.” A look at your credit history can be helpful in confirming your identity as well as your ability to responsibly pay back a loan.

If you are concerned about whether your PPP lender will pull your credit report as part of their PPP loan approval process, you should ask them whether they do.

If you prefer a lender not pull your credit report, you can apply at a PPP lender that doesn’t routinely pull credit reports as part of their approval process.

What’s the difference between hard credit inquiries and soft inquiries?

It may be useful here to go over the basic differences between hard and soft credit checks when discussing the potential impacts to your credit history and score.

Hard credit inquiries

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.

Hard inquiries do on your credit report, and they do usually affect your score to the negative. 

Sources vary, but in general you can expect each hard inquiry to your credit history to lower your credit score by between 3 and 7 points at the “big three” reporting agencies (Equifax, Experian, and TransUnion).

If your credit score is not good, you may be more concerned about any potential temporary lowering of your score due to a hard credit pull during your PPP loan application process. 

If your credit is typically “good” or “excellent, you can probably afford to lose a few points, particularly when the PPP loan you’re applying for may make the difference between keeping your business open or being forced to close permanently.

Soft credit inquiries

A “soft credit check” or a soft inquiry occurs when either 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 products or services.

“Soft” credit checks or inquiries don’t affect your credit scores, and in fact you should make it a habit of checking your credit reports at least once a year at all three of the major reporting agencies.

Since you need to give your permission for someone to perform a hard inquiry, and they show up on your credit reports, you should check regularly to make sure there are no unauthorized parties attempting to acquire credit in your name.

EIDL loans require lenders to pull your credit report

If you are applying for one of the SBA’s Economic Injury Disaster Loans or grants (EIDL), your lender will almost certainly pull your credit report.

For SBA 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.

If you feel you are not likely to be approved for an EIDL or PPP loan, you may want to consider other sources of emergency business funding.

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