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Credit scores are often touted as the make-it-or-break-it factor for business loans and credit lines.
But even entrepreneurs with high business credit scores may have trouble getting financing. This is partly because business-credit scores—as well as personal-credit scores—have become a weak indicator of repayment ability, at least in the eyes of some large lenders.
"It's a lagging indicator," says Kathie Sowa, a commercial banking executive at Bank of America Corp. "We are underwriting more on a traditional basis. We look at the full picture," she says.
Some of the metrics Bank of America prefers to rely on include cash flow and collateral to determine a business's creditworthiness, she says.
Mercantile Capital Corp., a non-depository lender in Altamonte Springs, Fla., that specializes in commercial real-estate loans, also doesn't give much weight to business-credit scores, which many entrepreneurs establish in the hopes of strengthening their position to secure financing.
Mercantile's chief executive, Chris Hurn, says those scores may not be objective, given that business owners can submit their own information to certain credit bureaus.
Mercantile, however, does look closely at an owner's personal-credit score because it "reflects the character of the person you're dealing with," Mr. Hurn says. "They say not whether they can pay back, but what their intent is to pay back."
Banks such as Mercantile can often gain all pertinent information without the business-credit score. Business owners' personal and business finances are usually intertwined and business lines of credit that carry a personal guarantee often show up on personal reports.
But Gerri Detweiler, a personal-finance adviser at Credit.com Inc. in San Francisco, reasons that even if high business-credit scores are unlikely to be the defining factor in procuring credit, they can help get the process started on the right foot. What's more, poor credit scores can be detrimental.
Read the rest at the Wall Street Journal: http://online.wsj.com/article/SB10001424052748704743404575127720760554664.html?mod=googlenews_wsj
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