Getting Personal

Q: Recently, I was declined for a business loan due to some negative personal credit issues, though my business bills have always been paid on time. What does my personal credit have to do with the bank's decision?

A: Quite a bit, especially if it's a new relationship. When you apply for a loan, one of the first things most lenders do is pull a copy of your credit report, which shows how you've paid your personal bills. If you've paid your car loans, credit cards and mortgage on a timely basis, the lender may conclude that you'll pay your business bills on time, too. Whether you're incorporated or not, if there's negative information, they may give you a painful answer.

Banks are usually required to tell you the reason they declined your application, and if their reason includes information in a personal credit report, you have a right to review that information.

You should obtain a copy of your report and review it carefully. It may contain information about someone else or credit issues that have been cleared up but not reported to the credit-reporting agency. Do your best to resolve those issues. Then include an updated report in your next loan request. Be sure to include a written explanation of any past problems, and be honest about your credit in your initial interview with a new lender. It could mean the difference between a quick no or advancement to the next level of review.

Doug Hood is co-founder of Rainmaker Capital Corp., a capital acquisition consulting company in Cartersville, Georgia. Co-founder Marilea S. Hood contributed to this article. Send questions or anecdotes via e-mail to doughood@rainmakercapital.com or call (770) 382-8773.

This article was originally published in the May 2001 print edition of Entrepreneur with the headline: Getting Personal.