PPP Loans & Credit Scores: Is A Credit Check Required To Get A PPP Loan? What To Expect When You Apply
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Expert Analyst & Reviewer
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The latest COVID-related aid package was signed into law on December 27, 2020.
The Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs are expected to return starting the week of January 11, 2021.
With this latest round of PPP funding, businesses — even those that received a PPP loan during the first funding period — will have a second chance to take advantage of the popular relief package. Now, two questions that many business owners have been asking are: Is there a credit score requirement one must pass in order to receive a PPP loan? Do lenders perform a credit check on PPP loan applicants?
Read on to find the answers to these and other PPP loan credit score questions.
Table of Contents
Credit Requirement Rules For PPP Loans
As far as formal requirements go, there is no credit score requirement you must meet in order to qualify for a PPP loan. This is despite the fact that the PPP program technically falls under the SBA’s 7(a) loan program, which does feature an acceptable credit requirement. However, this formal requirement has been suspended when it comes to Paycheck Protection Program loans.
Now, if your business is suffering from the effects of this devastating pandemic and you’re seeking a PPP loan, be aware that, unfortunately, this policy does not guarantee that your credit profile won’t be taken into account when the PPP lender assesses your application.
Do Lenders Check Credit When You Apply For A PPP Loan?
As lending for this current PPP funding round won’t actually begin until January 11, we cannot definitively say how a PPP lender will assess your credit profile if and when you apply for a PPP loan.
However, based on accounts from PPP applicants — many of which were posted to Reddit, Facebook, and other online forums — during the 2020 PPP funding period, many PPP lenders did take into account the credit profile of those applying for PPP loans and did, in fact, reject applicants based on the health of their credit.
Unfortunately, these accounts do not paint a consistent picture as to how a PPP lender might assess the credit of an applicant. In some instances, business owners reported having a hard credit check appear on their credit report after applying for a PPP loan. In other instances, it appears a soft credit check was performed. Again, different PPP lenders appear to have different policies regarding the running of credit checks on PPP applicants, and unfortunately, these policies are never disclosed up-front.
Now, based on the fact that, thus far, the SBA has not further clarified how an applicant’s credit profile will be treated during the PPP application process, we can only assume that this same scenario may play out again during this next round of funding. We wish we could give you a more definitive verdict on if and how your credit will be checked during the PPP application process, but we simply don’t have that clarity at this time.
What To Do If You’re Rejected For Poor Credit
Based on the apparent inconsistency amongst PPP lenders as to how they treat the credit profile of would-be PPP borrowers, the only advice we can give on this subject is that if a lender rejects your PPP loan application due to insufficiently healthy credit, you should apply to a different PPP lender in the hopes that their approach to PPP loan credit score requirements is different.
It’s unconscionable — and perhaps emblematic of the current haphazard national response to the challenges posed by the COVID-19 pandemic — that the SBA and its affiliated lenders have not worked together to provide some clarity on this issue, particularly as hard credit checks can have a negative impact on one’s credit score.
More About PPP Loans
For a complete rundown of the specifics of the latest pandemic aid package enacted into law on December 27, 2020 — including what the new law means for both the PPP and the Economic Injury Disaster Loan (EIDL) programs, check out our article Congress Passes New PPP Legislation, Targeted EIDL Program.
We’ve also written a guide to the requirements for applying for a PPP loan (along with the requirements for how you must spend your funds in order to have your loan forgiven). We highly encourage you to read through this article before you apply for a PPP loan. The article also contains descriptions and links to some of our preferred PPP lenders. These lenders should allow you to complete and submit an online PPP application starting the week of January 11th.
Finally, after you apply for a PPP loan, you may find yourself waiting to hear the results of your efforts for some time.
If you find yourself in this position, check out how to check on the status of your PPP loan application.
If you apply for a PPP loan and are rejected based on your credit health (or if your application is accepted, for that matter), please leave us a comment and let us know about your experience. It will help inform us all during this crazy, uncertain time.
Jason Vissers
Expert Analyst & Reviewer at Merchant Maverick
Jason Vissers has been researching, analyzing, and writing about small business software and finance since 2015. His financial expertise has been cited in numerous publications, including The Ladders. Jason graduated with a Political Science degree from San Diego State University in 2001.
View Jason Vissers's professional experience on LinkedIn.
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Got denied for credit reasons.. yes I’ve missed or been late on payments but only since this pandemic started. So not right or fair that those who are really struggling get Penalized
I agree. My father went through the exact same thing. This was supposed to HELP those struggling BECAUSE of the pandemic. They KNOW people’s scores are going to be in the toilet right now. We need the help based on other criteria..like time in business and if taxes are paid..etc. This was depressing to know u had to have a very good score to qualify. It hurt more than helped. 🙁
They declined my EIDL APP targeted advance loan for no reason :::Not Eligible: The applicant business did not substantiate the required reduction in gross receipts to
establish an economic loss greater than 30 percent.
my income in 2019 was 63k$ and 2020 was 12k$ ,I never late in credit card payment for the last 18 years ,zero late fee .,I DON’T UNDERSTAND ,,BAD CREDIT MEANS YOUR ARE FINANCIALY ACTIVE ,SOME PEOPLE DON’T HAVE ANY BUSINESS AND THEY GOT THE MONEY . I Work to death to pay off my bills ,lease ,rent insurance and other licensing fees and work 16 hours a day since 2006 ,I lost lot of money in my business , one car cost 52000$ a year to operate , ,,,sba is ran by criminals ..
You are so right!! Pro football player and his friends scooped almost 24 million. These scammer crooks getting the money, while real business like ours fight for every dime!!
Was denied due to bad credit. Seems strange as my 3 credit scores are 712..749.. and 761. Any suggestions as to how to reapply? Rejection email said decision was made by SBA …not lender
Hi Keith,
That does seem odd, but if there were any derogatory remarks, or recently missed or late payments, that could impact the decision. My understanding is that they are looking for a reasonably good overall payment history-not so much a particular score. And with those scores, it would seem that you are in better shape than most, or at least many. I’d reach out to the SBA to see if you can get clarification on the decision, and then reapply ASAP. You can apply with multiple lenders, just be sure to withdraw any outstanding applications once you are approved. I hope that was helpful. Good luck!
I was verified by Square in Feb 2021 (they handle my payroll & my POS) I be was in SBA review since 2/17 & got email rejecting my app because bankruptcy. We filed Ch13 in 2018 and have not missed any payments since. I was approved & 100% forgiven for 1st PPP. I thought PPP was not based on credit since most if not all would be forgiven anyway? This has really dampened my BB spirits as I have called SBA & Square back and forth ~6x each because one kept telling me it’s not in their court. One SBA agent even told me to Google latest legislation that would include bankruptcy as why I got rejected! As most of us small business owners we rely on govt help to prolong our business livelihood. SBA also told me there’s no way to be reconsidered once denied. If anyone has any recommendations on what I can do to get assistance it would be great appreciated. Thank you
Hi Melissa,
The only reference we can find that somewhat resembles your situation is a recent form by the SBA that indicates that applicants for 2nd draw PPP loans who are “presently involved in any bankruptcy” are ineligible, but that doesn’t seem to speak to situations where the applicant settled a bankruptcy years ago (and indeed got approved for a 1st draw PPP loan). You could try applying again through a different financial institution, but unfortunately, this might just be the way the SBA is interpreting the rules for 2nd draw PPP loans right now, illogical as it may be. We wish you all the best!
I applied in March 2021 through Square with mine as I did not know about Square doing this since I only started using them for my business Oct 2019. I just got my email this morning I was approved and was surprised because my husband was in an accident and GAP has yet to pay off my loan which has my credit in “delinquency” and I get turned down for any credit checks! I was checking on my Square Loan I am currently paying on and the PPP approval was there. I figured being an SBA loan I would get rejected. Your situation is odd cause why would they grant your first loan/forgive then deny the 2nd? Seems as if your bankruptcy was the issue it should’ve been that way. Hope you get it figured out!!!
Smartbiz denied me due to credit history. That’s awful! Of course my credit is not good, we have been in the middle of a pandemic, shame on you!
Did they tell you that your denied? I have been waiting for them for a long time with no answer at all..
On August 29th 2020 I unfortunately received a denial letter for the SBA DISASTER LOAN because of Unsatisfactory credit history.
I was told the same thing. I was thinking about disputing the findings due to my business credit being separate from my personal credit. I looked up the requirements and unfortunately personal credit is a factor.