On December 22, 2020, Congress passed the Stimulus Bill that includes new EIDL grants, new Paycheck Protection Program loans, and other small business support. Learn more about this legislation and apply for a new PPP loan here.
For small business owners hoping to secure a COVID relief loan through the Economic Disaster Loan (EIDL Program) or Paycheck Protection Program (PPP), a credit check is both dreaded and anticipated. . Some fear that a credit check will reveal credit problems that could prevent them from getting approved for the small business financing they desperately need. Others are elated when they see an SBA credit check appear on their credit reports because they see it as a sign that their application is progressing.
Here we explain what to expect from a credit check for these suddenly popular loans.
EIDL Credit Checks
As we explained in our article, EIDL FAQs, acceptable credit is a requirement for these disaster loans. There will be a personal credit check for all applicants, as well as a business credit check for all applicants except Sole Proprietorships for loan amounts over $ 200,000. If you are applying for any of these loans, it is a good idea to review your credit reports so that you can prepare an explanation of any past credit issues to provide to your SBA case manager. Personal credit checks for these loans go through Experian, so it’s a good idea to review your Experian credit report. The request appears as “US SM BUS ADMIN ODA” on the credit report. Business credit checks go through Dun & Bradstreet.
You can view your personal Experian credit report and your D&B trade credit with a free Nav account. Checking and monitoring your credit through Nav has no impact on your credit scores. All Nav requests are indirect requests and therefore are not provided to lenders or used in the calculation of credit scores.
One source of confusion appears to be why credit is checked for these loans, especially during a national disaster like that caused by the coronavirus. The answer is quite simple: if an SBA loan is not repaid, taxpayers are ultimately on the hook. Credit checks have traditionally been a way to spot borrowers most likely to default, and this is also true for disaster loans.
Note that even if you are refused an EIDL due to credit issues, you can still keep any advance / grant up to $ 10,000 that you have received.
PPP Credit Checks
There does not appear to be any credit check required for PPP loans. This is somewhat surprising since these loans technically fall under the SBA 7 (a) loan program, which usually requires acceptable credit. In fact, 7 (a) loans of $ 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 think about the fact that the PPP is designed primarily to be a loan that will be completely forgiven, it makes sense that good credit is not required.
It does not appear that most of the lenders check the credit for these loans. However, several people from Nav CARES Act Facebook Hub reported that their credit was verified for PPP loans, or that they were refused for PPP on the basis of 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.
It is also possible that they can check credit to verify the identity of an applicant. A growing number of lenders are making these loans to non-customers and will need to try to prevent fraud. But in this case, the lender could use a “soft” credit check which we discuss below.
Keep in mind that if the credit check shows up on your SBA credit reports, it will be for an EIDL as these loans come directly from the SBA. If a lender is checking credit for a PPP loan application, the lender’s name will be associated with the request, not the SBA.
Investigations and your credit scores
Here’s a quick reminder of inquiries and their impact on your credit:
- An investigation simply indicates that someone has checked your credit. It does not indicate whether you have been approved or denied for credit.
- An investigation can be a “soft” investigation that does not affect your credit scores, or a “hard” investigation that can. You see all the inquiries on your reports, but the lenders will not see the indirect inquiries. Loan applications fall under the category of inquiries, although some creditors use soft credit drawings in the context of business credit applications.
- A request will only appear on the credit report viewed for the transaction and is usually a credit report from Equifax, Experian, or TransUnion. In the case of EIDL investigations, it appears that the SBA is accessing Experian’s personal credit reports.
- One application usually lowers your credit score by about 3 to 7 points. The impact often stabilizes over the following months as long as new demands do not continue to accumulate.
- Inquiries typically impact credit scores for six months to a year. After two years, they are deleted from the credit report.
- Certain types of inquiries over a short period of time can be grouped together and counted as one, including inquiries on mortgage, auto and student loans. The exact period varies depending on the credit scoring model used.
In general, inquiries should not be a major concern or issue for people applying for COVID relief loans. However, if you have had credit problems in the past and apply for these loans, you will want to review your credit reports in advance.
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