Finance & Wealth

Why This 1 Common Issue for Business Loans Isn't Actually a Big Deal

By Fundera | Apr 6, 2020
Fundera | ACHNET

When business owners are looking for affordable funding, such as loans, one question they ask more than any other is (and you probably guessed it), "Will this affect my credit?"

It's an understandable question. Most people know that a hard credit inquiry results in a temporary hit to your personal credit score. And no one likes being penalized just for reviewing their options.

But the extent to which business owners avoid hard pulls--multiple times a day, our team is told to avoid any loan product that will do a hard pull--may be actively hurting their bottom line.

Hard Pulls Versus Soft Pulls

There are two main types of credit inquiries.

A "soft pull" or "soft inquiry" has no effect on your credit score--it's just a way for someone (it could be you, an employer, or a credit card company pre-qualifying you for a card) to check your credit score.

A hard pull is essentially the same thing--a check credit by a lender or creditor. But this type of inquiry shaves a few points off your score. (The exact amount depends on your credit history, including your current credit utilization).

And because your personal credit score is an important factor that lenders consider during the loan application process, you'll want to be aware of how many times your score has been hard pulled.

The Benefits of a Hard Pull

When seeking financing, there are a variety of routes a business owner can take. There are dozens of online lenders, offering all kinds of funding options (term loans, lines of credit, equipment financing, invoice financing, and so on). Some lenders do a hard pull on your credit when you apply with them; others just do a soft pull.

In a vacuum, assuming every lender offered the same product, at the same rates, available to you at the same time, a soft pull is preferable.

But sometimes the lender that does a hard pull will offer a financing product that makes more sense for your business, or is a better fit for your needs.

Take Kabbage, for example. A line of credit from Kabbage can be made available to you in as little as five minutes, if you're approved. Their lines go up to $250,000. And you make monthly payments (rather than weekly, or even daily) on what you draw.

Most other line of credit products--from