If you’re looking for a business loan and buying a home at the same time, let us just say “Congrats!” It sounds like you have a lot of big, exciting changes going on in your life.
But trying to borrow money for two reasons at once can be a little scary. First of all, traditional lenders like banks or other mortgage lenders will do what is called a “hard pull” on your credit score. Hard pulls for different types of loans can hurt your credit score by a few points. Many hard pulls can hurt your credit score a lot!
So what do you do if you have no choice but to shop for a mortgage loan and a business loan simultaneously?
Most mortgage lenders have strict credit criteria when deciding to make what they see as a 30-year investment in a borrower. After all, they were burned before in the 2008 financial crisis!
In general, a mortgage lender will pre-qualify you for a loan as you begin your search for a home. This allows you to find out exactly how much house you can afford. But, mortgage lenders will often pull your credit again just before you go to close on the house. In their eyes, they are checking to make sure you didn’t make any major changes for the worse with your credit between pre-qualification and closing. For you, though, if you’ve also been applying for business loans, this could bring down your credit score, meaning that your mortgage lender then offers you worse terms, such as requiring a higher deposit or offering a higher interest rate.
When you apply for a traditional bank loan for your business the bank will also do a hard pull on your credit. Like we mentioned above, this can cause your mortgage lender to react negatively, impacting you financially for years to come.
So why not consider alternative methods of business lending that do not require a credit pull. These include:
Invoice Financing – With invoice financing, lenders will give you a cash advance based on your outstanding invoices. They generally give you an advance of around 85% of the value of your invoices while paying most of the other 15% to you later. Many invoice financing companies do not require a credit pull.
Merchant Cash Advances – With this this type of loan, you receive a fast cash advance, but in exchange you allow the lender to take a portion of your business’s credit card proceeds each day. Some MCA companies do not require a credit pull.
Sometimes you find yourself in a situation where you don’t have a choice and must apply for two loans at once. In this case, take steps to improve your credit, such as:
Paying off credit cards – A low debt to credit ratio reflects well and will improve your credit score.
Refrain from closing old accounts – Keep credit accounts open even after you’ve paid them off. Closing them may make your length of credit history look shorter, which could affect your score.
Look for Errors – Pull your credit report from the 3 major credit bureaus (you can do it for free here!) and really study it. Are there any errors? An estimated 25% of credit reports contain errors, so make sure you’re not suffering due to someone else’s mistake.
If you can afford to wait to find a business loan, you might be better off closing on your mortgage and then beginning the business loan search. This way, your mortgage rates won’t be affected.
If you’re simultaneously searching for a mortgage and a business loan your credit situation may be a little more complicated than if you had the luxury of searching for both at separate times, but these tips should help. Good luck with your business and your new home!