Does a Business Loan Affect Personal Credit?

Running a business often means needing extra cash. But if you're thinking about getting a business loan, you might be wondering: does a business loan affect personal credit?

In this article, we’ll explain how business loans and personal credit are linked, when your score might take a hit, and how you can protect it.

Understanding personal credit and business loans

Your personal credit score is a number that shows lenders how good you are at borrowing and repaying money. It’s based on things like how much you owe, how often you pay on time, and how long you've had credit.

Business credit is similar, but it's tied to your business instead of you. The two are usually separate, but there’s a catch: most small business loans require a personal guarantee. That means you agree to repay the loan personally if your business can’t.

So, even if the loan is for your business, your personal credit might still be involved.

How business loans can affect personal credit

A business loan might affect your personal credit in a few ways:

Personal guarantees: If you sign one, you’re liable if your business can’t repay the loan. If payments are late or missed, it could hurt your personal credit score.
Credit checks: Some lenders do a hard credit check, which can cause a small, short-term dip in your score. Others do a soft credit check, which doesn’t affect your score but will still show a search has been carried out.

In short: if your name is tied to the loan, your credit could be at risk.

How personal credit can affect business loan approval

Lenders often check your personal credit when you apply for a loan, especially if you’re a new business or have limited business credit history. Here’s why it matters:

A high personal credit score can boost your chances of getting approved.
Better scores usually mean lower interest rates and bigger loan amounts.
If your business is small, lenders see your credit as a sign of how your business will handle money.

So, while you’re trying to keep things separate, your personal credit still plays a big role.

Types of business loans and their impact on personal credit

Different loans affect your personal credit in different ways:

Secured loans: These require assets like property or equipment as collateral. If the loan is fully backed by business assets, you might not need a personal guarantee.
Unsecured loans: These usually require a personal guarantee, so your credit could be at risk if the business can’t pay.
Traditional bank loans: Banks often require strong personal credit, especially for new businesses.
Online lenders: They may be more flexible but can still require a personal guarantee.
Merchant cash advances and business credit lines: These might also involve credit checks and guarantees, depending on the lender.

Always check the loan terms carefully - some may affect your credit more than others.

How to protect your personal credit when taking out a business loan

Here are five simple ways to keep your credit score safe:

Shop around: Not all lenders do hard credit checks upfront. Compare your options.
Pay on time: Late payments can damage your score - set reminders or automate payments.
Keep finances separate: Use different accounts for business and personal spending.
Check your credit reports: Keep an eye on both personal and business credit reports.
Understand the guarantee: Before signing anything, know exactly what you’re agreeing to. Ask the lender how your credit will be affected if things go wrong.

6. Building business credit

Want to keep your personal credit out of business matters? Start building business credit:

Get a business credit card to use for company expenses and pay it off in full.
Make sure your business is listed with UK credit agencies such as Experian or Equifax.
Pay suppliers on time. Good payment habits help build a strong credit profile.
Take small loans in your business name - paying them off responsibly boosts your business credit score.

With time, this can make it easier to get loans without using your personal credit.

Weighing the risks and benefits

So, does a business loan affect personal credit? The answer is: it can - but it doesn’t have to.

If your loan has a personal guarantee or your name is tied to it, there’s a chance your credit score could take a hit. But by understanding the risks, choosing the right lender, and managing repayments carefully, you can protect your credit and grow your business.

Need help choosing the right business loan? Check out our guide to types of business finance or apply online today and see how Fleximize can help you grow.

Your common questions answered

What happens if you use a personal loan for business?

Using a personal loan for business means you're personally responsible for repaying it, even if your business doesn’t succeed.

This can affect your personal credit score if you miss payments or borrow more than you can manage. It also won’t help build your business credit history.

Business loans are usually a better option because they’re designed for business use and may offer better terms.

Does a business account affect personal credit?

A business account on its own doesn’t affect your personal credit.

However, if you open credit lines or overdrafts tied to the account and sign a personal guarantee, then your personal credit could be impacted - especially if payments are missed.

Keeping your finances separate helps protect your credit score.

Do business loans show on your personal credit report?

It depends. If you’ve signed a personal guarantee or the lender reports to consumer credit bureaus, the loan could show on your personal credit report - especially if you default.

If there's no personal guarantee and the lender only reports to commercial credit agencies, it usually won't appear on your personal report.

Can you get a business loan with bad personal credit?

Yes, but it may be harder. Some lenders focus more on business performance than personal credit, especially if you’ve been trading for a while and have strong cash flow. You might face higher interest rates or need to offer collateral.

Building up business credit can help reduce your reliance on personal scores.

How can I build business credit fast?

Start by:

Registering your business with credit agencies
Getting a business credit card
Paying suppliers on time
Taking out small business loans or credit lines in your business name.

Use them responsibly and keep your payments on schedule to boost your business credit profile.

Do you have a question that you can't see? Check out our FAQ page.