What You Need to Know About Credit Scores, EIDLs and PPP loans

There’s a lot of confusion around whether credit scores render would-be borrowers eligible — or not — for EIDL and PPP loans.

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This article was originally published on April 21, 2020. It was updated on April 28, 2020 to reflect new funding for the PPP and EIDL loan programs. 

The Small Business Association has resumed accepting loans for the Payroll Protection Program and Economic Injury Disaster Loans.

Last week, Congress passed a $484 billion spending bill to replenish funds for the PPP and EIDL loan programs.

In addition to the $320 billion in new PPP loan funding approved by the president on Friday, this round includes $60 billion allocated to the Economic Injury Disaster Loan (EIDL) program.

Do you need a minimum credit score to be eligible?

Traditional SBA loans are desirable for small business owners because they’re a low-interest, long-term option.

“SBA loans are highly sought after by small business owners but they do come with strict criteria, including a good credit score,” said Matt Woodley of CreditInformative.com.

Since the CARES Act included provisions for federally-backed loans provided by the SBA, it’s no surprise that there’s been a lot of confusion around whether credit scores render would-be borrowers eligible — or not — for EIDL and PPP loans.

  • The short of it: Your credit score is not tied to your eligibility for PPP but it is for EIDL
  • Because much of the PPP money is expected to be forgiven, there are no collateral or guarantor requirements for the money
  • EIDL doesn’t require a guarantor for loans up to $200,000 and instead these are made purely on credit score

“I’ve already seen one hit to my credit score. I’m expecting to see two, since the inquiries are coming from separate entities — PPP loan from lender and EIDL loan from the SBA,” said Calloway Cook of Illuminate Labs.

Why does the SBA do “hard pull” on your credit for both then?

Why does the SBA pull your credit?

Lenders need to make sure you’re accurately representing yourself and your business, and credit scores are a quick way to do so.

“The SBA will pull (known as a hard pull) your credit prior to providing you with a loan to assess your credit report and score in order to determine your creditworthiness,” Woodley said.

Your credit score gives a good indication of whether or not you’ll pay your bills. But much like your personal credit score, you don’t have just one business credit score but multiple ones depending on the credit bureau pulling your credit report.

What does a hard hit do to your credit score?

Because there are different credit bureaus, the level of impact to your credit score depends on which organization is pulling your credit.

“Your Experian Intelliscore could be impacted by your initial inquiry into your business credit, while the FICO SBSS scores evaluate both your business and personal credit, and a high number of hard inquiries over a shorter period of time could have a negative impact,” said credit card industry analyst Nathan Grant.

“Scores from Equifax or Dun & Bradstreet PAYDEX should be unaffected by hard inquiries as the factors that impact those scoring models are related to your business’ financial data.”

Hard hits or “pulls” lower your credit score, although usually temporarily. For some people, this isn’t ideal even in the short term.

“I may be purchasing a house in the next 6 to 12 months, so I wouldn’t want any dent in my credit score,” Calloway said.

Are there disqualifying factors for the PPP/EIDL?

If the government gets more funding for EIDL loans, the following will automatically disqualify you under the current guidelines:

  • You have judgments against you for any federal debts and a repayment plan hasn’t been negotiated
  • You have delinquencies of more than 60 days for child support
  • You have any federal tax liens of more than $10,000, though in some cases you could still qualify if you’ve contacted the IRS, explained your situation, and worked out a payment plan with the IRS

If the government gets more funding for PPP loans, the following will automatically disqualify you under the current guidelines:

  • You’re suspended by any Federal agency from participating, which could even include if you’re going through bankruptcy
  • You’ve defaulted on an SBA loan in the past
  • You’re presently incarcerated, on probation or parole, or subject to arraignment or an indictment for any criminal charges
  • You have a felony on record within the last 5 years

What can you do to protect your credit?

Whether you have bad credit already or a hard pull has impacted your credit score, the best thing small business owners can do is make a plan to build their business credit scores in other ways.

“Engage in responsible credit habits like making on-time payments and avoid carrying high balances month-to-month, and establish trade lines and merchant accounts with your vendors, suppliers, and lenders, and be sure to pay on time” Grant said.

Calloway says he hopes to get any hard pulls from the CARES act removed but it’s not the top priority.

“It’s not my immediate concern. If we get either of the loans approved, it will be worth it. I think there will be significant legislative pressure to erase hard pulls, but I’ll reach out to credit bureaus if not.”

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