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On December 22, 2020, Congress passed the incentive bill, which includes new EIDL scholarships, new Paycheck Protection Program loans, and other help for small businesses. Read more about this legislation and apply for a new PPP loan here
For small business owners hoping to get a COVID loan through the Economic Injury Disaster Loan (EIDL Program) or Paycheck Protection Program (PPP), a credit check is both feared and expected. Some are concerned that a credit check will reveal credit problems that may prevent them from being approved for it small business financing need them badly. Others are excited to see a credit check from the SBA appear on their credit reports as they take this as a sign that their application is moving forward.
Keep an eye on your personal and business credit score
Stay tuned when questions are asked about your personal and business credit. * You get free access to your business credit reports and scores when you sign up for a free Nav account. Checking won’t hurt your credit scores.
Here we explain what to expect from a credit check for these suddenly very popular loans.
EIDL credit checks
As we explained in our article, Frequently asked questions about EIDLsAcceptable credit is a requirement for these disaster loans. A personal credit check will take place for all applicants, plus a business credit check for all applicants except sole proprietorships for loan amounts in excess of $ 200,000. If you are applying for one of these loans, it is a good idea to review your credit reports so that you can prepare an explanation for any past credit problems to provide to your SBA case manager. Personal credit checks for these loans run through Experian, so it’s a good idea to check your Experian credit report. The request appears as “US SM BUS ADMIN ODA” on the credit report. Business credit checks are done through Dun & Bradstreet.
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You can view your personal Experian credit report and D&B business credit with a free Nav account. Checking and tracking your credit through Nav will not affect your credit scores. All Nav questions are soft questions and are therefore not provided to lenders or used in calculating credit scores.
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One source of confusion seems to be why the creditworthiness of these loans is checked, especially in a nationwide disaster like the one caused by the corona virus. The answer is quite simple: if an SBA loan is not repaid, the taxpayers are ultimately on the hook. Credit checks have traditionally been a way to track down borrowers who are more likely to default, and that includes disaster loans.
Note that even if you are turned down from an EIDL due to credit issues, you can still keep up to $ 10,000 in advance / grant you received.
PPP credit checks
No credit check appears to be necessary for PPP loans. This is somewhat surprising, as these loans are technically under the SBA 7 (a) loan program, which typically requires acceptable credit. In fact, 7 (a) loans for $ 350,000 or less normally require the application to be pre-screened using the FICO SBSS Credit Score, which can take into account both personal and business credit. However, when you consider that PPP is primarily designed as a loan that is completely forgiven, it makes sense that good credit is not required.
It doesn’t seem like most lenders check the credit for these loans. Several people in the Nav CARES Act Facebook Hub have reported that their credit has been checked for PPP loans, or that they have been declined for PPP-based credit. In general, lenders are allowed to add their own requirements to SBA loans as long as they do not discriminate on a prohibited basis.
They may also be able to check the credit to verify the identity of an applicant. More and more lenders are providing these loans to non-customers and will have to try to prevent fraud. But in that case, the lender can use a ‘soft’ credit check which we discuss below.
Keep in mind that if the credit check shows up on your credit reports from the SBA, it is for an EIDL as those loans come directly from the SBA. If a lender checks the credit for a PPP loan application, the lender’s name is associated with the study, not the SBA.
Questions and your credit scores
Here’s a quick refresher on questions and how they affect your credit:
- An investigation simply indicates that someone has checked your credit. It does not state whether you have been approved or declined for credit.
- A question can be a “soft” question that does not affect your credit rating, or a “hard” question that can. You will see all questions in your reports, but lenders will not see soft questions. Loan applications fall under the hard investigations category, although some creditors use soft credit draws in the context of corporate credit applications.
- A question will only appear in the credit report opened for the transaction, and usually it will be one credit report from Equifax, Experian, or TransUnion. In the case of EIDL queries, it appears that the SBA has access to Experian’s personal credit reports.
- A single survey usually lowers the credit score by about 3-7 points. The impact often levels off over the next few months as long as new studies don’t continue to end.
- Surveys generally affect credit scores for six months to a year. After two years they are removed from the credit report.
- Certain types of questions in a short period of time can be grouped and counted as one question, including mortgage, auto, and student loan questions. The exact time period depends on the credit score model used.
In general, inquiries should not be a major concern or problem for individuals applying for a COVID loan. However, if you have credit problems and are applying for these loans, you will want to review your credit reports in advance.
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