Credit check

Will a personal or business credit check be required for EIDL or PPP loans?

On December 22, 2020, Congress passed the stimulus bill which includes new EIDL grants, new Paycheck Protection Program loans, and other small business relief. Learn more about this legislation and apply for a new PPP loan here.

For small business owners hoping to get a COVID relief loan through the Economic Disaster Loan (EIDL program) or the Paycheck Protection Program (PPP), a credit check is both dreaded and anticipated. . Some worry that a credit check will reveal credit issues that could prevent them from being approved for the small business financing they desperately need. Others are thrilled when they see an SBA credit check appear on their credit reports because they take it as a sign that their application is moving forward.

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, EIDL FAQsacceptable credit is a requirement for these disaster loans. There will be a personal credit check for all applicants, plus a business credit check for all applicants, except sole proprietors, for loan amounts over $200,000. If you’re applying for one of these loans, it’s a good idea to review your credit reports so 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 Experian personal credit report and your D&B business credit with a free Nav account. Checking and monitoring your credit via Nav does not affect your credit scores. All Nav inquiries are informal inquiries and therefore are not provided to lenders or used in calculating credit scores.

One source of confusion seems to be why the credit is checked for these loans, especially during a national disaster like the one caused by the coronavirus. The answer is quite simple: if an SBA loan is not repaid, taxpayers are ultimately responsible. Credit checks have traditionally been a way of spotting borrowers most likely to default, and that goes for disaster loans too.

Note that even if you are denied for an EIDL due to credit issues, you can still keep any advance/grant up to $10,000 you received.

PPP credit checks

There does not appear to be a credit check required for PPP loans. This is somewhat surprising, as these loans technically fall under the SBA 7(a) loan program, which generally 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 professional 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 isn’t necessary.

It does not appear that most lenders check the credit for these loans. However, several people in the CARES Act Facebook Hub reported that their credit has been checked for PPP loans, or that they have been refused for credit-based PPPs. Generally, lenders are allowed to add their own requirements to SBA loans as long as they don’t discriminate on a prohibited basis.

They may also check credit to verify an applicant’s identity. An increasing number of lenders are making these loans to non-customers and will have 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 because these loans come directly from the SBA. If a lender checks the credit for a PPP loan application, the lender’s name will be associated with the application, not the SBA.

Inquiries and Your Credit Scores

Here’s a quick recap of inquiries and their impact on your credit:

  1. An inquiry simply indicates that someone has checked your credit. It does not indicate whether your credit has been approved or denied.
  2. An inquiry can be a “soft” inquiry which does not impact your credit scores, or a “hard” inquiry which may. You see all requests on your reports, but lenders won’t see informal requests. Applications for loans fall under the category of credit applications, although some creditors use soft credit applications as part of business credit applications.
  3. An inquiry will only appear on the credit report viewed for the transaction and this is usually a credit report from Equifax, Experian or TransUnion. In the case of EIDL investigations, it appears that the SBA is accessing personal credit reports from Experian.
  4. A single inquiry usually drops the credit score by around 3 to 7 points. The impact often stabilizes over the following months as long as new inquiries do not continue to accumulate.
  5. Inquiries typically impact credit scores for six months to a year. After two years, they are removed from the credit report.
  6. Certain types of inquiries over a short period of time may be grouped together and counted as one, including mortgage, auto and student loan inquiries. 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 issues in the past and are applying for these loans, you will want to review your credit reports beforehand.

This article was originally written on April 20, 2020 and updated on January 11, 2021.

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