Do business loans show up on personal credit reports? —J.P., Milwaukee
Traditionally, business loans were considered separate from business owners' personal credit reports. But that has been changing as technology makes cross-reporting more feasible, says Jordan Peterson, senior vice-president for business banking at PNC Financial Services Group (PNC).
"In the past, banks didn't have technology to report business-loan data back to the credit bureaus," Peterson says, but automation has become more common over the last decade. "There are business bureau repositories built by companies like D&B that many banks belong to now. They report business loan repayment history, and other members of that repository can look at it as long as they supply data to it."
No Uniform PolicyIn other words, if your bank supplies information to a business data bureau that is used as a resource by the credit bureaus, it's likely that information about your business repayment history could indeed influence your personal credit score. The practice applies primarily to small, privately held companies and startups whose owners are likely to be asked for personal guarantees to obtain credit. That means not only self-employed people, but also owners of smaller LLCs and S-corporations as well.
It's difficult to know for sure, however, because there isn't a uniform policy on this issue. "It will depend on what bank you've got a loan with and what kind of reporting they do," Peterson says. You can certainly ask your bank loan officer or bank manager what its policy is on sharing business loan data with credit bureaus.
He compares the shift on business loan reporting to the 1980s, when some banks expanded their portfolios to include smaller loans—under $100,000—to entrepreneurs. "Banks used to think it was too expensive to deliver credit to smaller companies. That's when credit scoring was put on the table," he says.
Banks evaluating small business loans began to rely heavily on consumer credit scores at that time, because personal repayment history has proven to be predictive of how likely a business is to pay back its loans. "The bank really cannot separate an owner from the business because the owner drives the business," Peterson says.
Growing TrendEven if your bank loan history is not being shared with credit agencies now, it probably will be in the future. With technology making data-sharing cheaper and easier, banks will increasingly expect more information on the loans they underwrite, including data on how applicants' have performed on past business loans.
Along with paying back both personal and business loans on time, business owners looking for credit can benefit from establishing relationships with local bankers. "Having an advocate who understands you and your business can help a lot, especially if you're in an industry that's been badly affected by the downturn," Peterson says. And expect banks to ask for personal guarantees on loans—even for businesses that are doing well despite the recession.