PPP Loans & Credit Scores: Is A Credit Check Required To Get A PPP Loan? What To Expect When You Apply

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.

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.