Will a Personal or Business Credit Check Be Required for EIDL or PPP Loans?

Will a Personal or Business Credit Check Be Required for EIDL or PPP Loans?

Will a Personal or Business Credit Check Be Required for EIDL or PPP Loans?

Update: The SBA announced on July 13, 2020 that EIDL advances (grants) will no longer be made to new applicants. Small business owners and independent contractors may still apply for Economic Injury Disaster Loans.

For small business owners hoping to get a COVID relief loan through the Economic Injury Disaster Loan (EIDL program) or Paycheck Protection Program (PPP), a credit check is both dreaded and anticipated. Some worry that a credit check will reveal credit problems that may prevent them from getting approved for the small business funding they desperately need. Others are excited when they see a credit check from the SBA appear on their credit reports as they take it as a sign 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, FAQs about EIDLs, acceptable 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 above $200,000. If you are applying for one of these loans it’s 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 go through Experian, so it’s a good idea to review your Experian credit report. The inquiry appears as “US SM BUS ADMIN ODA” on the credit report. Business credit checks go through Dun & Bradstreet. 

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You can review your personal Experian credit report and D&B business credit with a free Nav account. Checking and monitoring your credit through Nav does not impact your credit scores. All inquiries from Nav are soft inquiries, and therefore are not provided to lenders or used in calculating credit scores. 

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One source of confusion seems to be why credit is checked for these loans, especially in a nationwide disaster like that caused by coronavirus. The answer is fairly straightforward: if an SBA loan isn’t repaid, taxpayers are ultimately on the hook. Credit checks are traditionally a way to spot borrowers who are more likely to default, and that’s true of disaster loans as well. 

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

PPP Credit Checks

There does not appear to be any credit check required for PPP loans. That’s somewhat surprising because these loans technically fall under the SBA 7(a) loan program, which typically does require acceptable credit. In fact, 7(a) loans for $350,000 or less normally require the application to be prescreened using the FICO SBSS credit score, which can take into account both personal and business credit. However, when you think about the fact that PPP is designed primarily to be a loan that will be completely forgiven, it makes sense that good credit isn’t required. 

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

It’s also possible they could check credit to verify an applicant’s identity. An increasing number of lenders are providing these loans to non-customers and will need to try to prevent fraud. But in that case, the lender could use a “soft” credit check which we discuss below. 

Keep in mind that if the credit check appears on your credit reports from the SBA, it will be for an EIDL as those loans come directly from the SBA. If a lender checks credit for a PPP loan application, the lender’s name will be associated with the inquiry, not the SBA. 

Inquiries And Your Credit Scores

Here’s a quick refresher on inquiries and how they impact your credit: 

  1. An inquiry simply indicates that someone has checked your credit. It does not state whether you were approved or denied for credit.
  2. An inquiry may be a “soft” inquiry which doesn’t impact your credit scores, or a “hard” inquiry which may. You see all inquiries on your reports, but lenders won’t see soft inquiries. Applications for loans fall under the hard inquiry category, though some creditors do use soft credit pulls in the context of business credit applications. 
  3. An inquiry will appear only on the credit report accessed for the transaction and usually that’s one credit report from either Equifax, Experian or TransUnion. In the case of EIDL inquiries, it appears the SBA is accessing personal credit reports from Experian.
  4. A single inquiry usually drops the credit score by roughly 3-7 points. The impact often levels off over the course of the following months as long as new inquiries don’t continue to wrack up. 
  5. Inquiries generally impact credit scores for six months to a year. After two years they are removed from the credit report. 
  6. Certain types of inquiries in a short period of time may be grouped and counted as one, including mortgage, auto and student loan-related inquiries. The exact time period varies depending on which credit scoring model is used. 

In general, inquiries should not be a major concern or issue for individuals applying for COVID relief loans. However, if you have past credit problems and apply for these loans, you will want to review your credit reports in advance. 

 

 

This article was originally written on April 20, 2020 and updated on July 13, 2020.

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ABOUT AUTHOR

Ty Kiisel

Ty Kiisel is a Main Street business advocate, author, and marketing veteran with over 30 years in the trenches writing about small business and small business financing. His mission at Nav is to make the maze of small business financing accessible by weaving personal experiences and other relevant anecdotes into a regular discussion of one of the biggest challenges facing small business owners today.

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40 responses to “Will a Personal or Business Credit Check Be Required for EIDL or PPP Loans?

  1. I applied for PPP on 6/20. 6/25 Credit was pulled and creditwise shows “US SM BUS ADMIN ODA” with Experian. I got approved for the PPP a few hours later from the lender and signed my docs. SBA does pull your credit. I also had to verify my identity with the lender and the 8 questions were very specific and had one question specific because of my line of work.

  2. Should a ppp loan for my husiness which is s corp should up on personel credit report i did show.om my equifax loan from bank that gave me ppp loan is this correct

  3. I just got my Experian score up to a 787. My credit weakness is that my credit shows 24 months of history. I would like to know if after approval of the EIDL Loan, will it show up on my credit report as a new loan. For me, this will decrease my credit history down to 20 months and drop my score by 20 points. Not sure if a $10K loan is worth the drop. Your thoughts?

    1. It is our understanding that the SBA does not have a mechanism for reporting EIDL loans to personal credit. However, I can’t speak for the SBA. You can always call the SBA Disaster Assistance hotline to confirm.

  4. if approved for the EIDL loan for my business, will that debt show in my personal credit report until it maturity?

    1. It’s our understanding that the SBA does not have reporting EIDL loans to personal credit. However, I can’t speak for the SBA. You can always call the SBA Disaster Assistance hotline to confirm.

  5. I received a ppp loan from Bank of America about May 10th. It is very strange that the SBA not bank of A checked my credit on May 28, long after I got the money..
    why would this be?
    I also got money from the disaster loan- the one that you get 1000 an employee up to 10,000. Since I am a solePractitioner I received 1000, but it was in April.

  6. SBA run my credit twice. I don;t know why. I applied for both EIDL and PPP loan. No idea why they have to run it twice. Recently they email me my account number and asked me to create a portal account, no idea what that means in getting an approval.

  7. I applied for the PPP Loan through PayPal and got approved with a score of 620/630 They did a hard inquiry through Transunion and Equifax witch im not too happy about since im in the process of repairing my credit. And didnt need a 10 point drop right now.

  8. The SBA took almost a month to deny my EIDL application based on credit history, and never saw a dime of the advance. 11 employee LLC.
    Requested reconsideration for the advance two weeks ago.

  9. Why the credit check for the EIDL Advance ? It says right on SBA’s website that this will not have to be paid back. This doesnt make sense to me.

    1. I hear you. Disaster loans require “acceptable credit” and EIDLs are the same. You apply for the EIDL and request a grant so it’s not a separate process. Based on my reading of the CARES Act, though, I did not expect business owners to be declined the grant based on credit. As you point out, it does not have to be repaid. But at least one business owner has shared his rejection letter for both based on credit.

  10. My question would be this. Now that it has been checked, does this bring it any closer to getting it funded. Eidl grant. If so, the timeframe of when could should look to see funds in my account from there. Thanks for your helpful article regarding it.

  11. I am an independent contractor, and receive a 1099 for ALL of my income. I was denied a PPP loan yesterday and the reason given in the email was “Insufficient credit history for authorized representative or applicant”. Loan was being processed by PayPal. I don’t have “bad” credit, just a lack of history because I’m averse to debt and just pay cash for things. My income has ground down to $0 since 3/10/20, there isn’t much work on the horizon, and savings is dwindling rapidly. Am I just out of luck?

    1. Apply elsewhere Craig. We’re happy to try to help match you to a lender at Nav (Nav.com). You can also try local banks or credit unions. Act quickly as funds will go quickly this time around.

    1. Yes , don’t even ask pay pal! My business account is with them and I was denied a ppp for a credit score of 648 and it dropped thanks to them…..

  12. It is ridiculous that the government will only give disaster funds to people with good credit! So people that is already in financial hardship and have bad credit now are left to suffer even more. What a great country the USA is…… NOT.

  13. I was not approved for a PPP loan through PayPal/Webbank who I have received working capital loans through them before. Their reason for denial was “insufficient credit history of authorized representative of applicant” So they will deny approval for a PPP loan based on credit check.

  14. I Would like to know if I can apply for PPP if am self employed? And can or do I claim one employee as my self? I was as my side business? Project finished near the end February. But the client couldn’t pay.

  15. My personal credit was a factor today from paypal on a ppp loan declined at 675… So…. Sole prop…. With medium credit won’t get through… At least with PayPal/loanbuilder. PPP was to help. Apparently paypal/loanbuild/web bank doesn’t want to help. Horribly frustrating to have to close shop and do bk…

  16. Paypal is pulling credit for the PPP loan. There are threads on Reddit and other sites about it. Business owners have been denied due to low scores.

  17. Just got rejected for PPP loan as a sole proprietor for credit report. The lending platform is Paypal aka LoanBuilder. Sole proprietor. I don’t have any lines of credit open therefore my score isn’t very high. 580-610 beacon score.

  18. Thank you for considering my reach out for help during these hard times. My life has been a roller coaster and this one I never want to ride again! I saw an inquiry on my credit report today. Karen, Patty and Lynn

  19. will the PPP loan for my self employment show up as a loan debt on my credit report? If so how long will it take to show up?

    1. I don’t expect these loans to be reported on personal credit. SBA loans don’t typically report to the owner’s credit and I don’t have any reason to believe these will be different.

  20. Hi, thanks for the informative article! My question to would be this-I’m taking out an EIDL loan for my business. Since loan terms are 30 years, could this prevent me from taking out credit down the road? Will it affect my personal credit? I can’t seem to find any information about this.
    Thank you!

    1. Molly – Disaster loans don’t report to personal credit but there is a credit check. As with any small business loan you’ll need to disclose it on future applications; I can’t comment on whether that would affect applications with other lenders. The term is up to 30 years and you can prepay at any time.