Why Your Personal Credit Record Matters for Business Loans

personal credit record

Many entrepreneurs wrongly assume that if their business generates strong revenue, accessing loan funding should be straightforward. Unfortunately, that’s not the case. One of the most critical factors considered when assessing a small or medium enterprise (SME) for funding is the personal credit history of its directors.

Why is this important? Because, unlike large, established corporates, most SMEs don’t have a credit record of their own. Lenders rely on the directors’ personal credit profiles to assess the likelihood of repayment — essentially using past behavior to predict future actions.

If a director has a judgment listed against them, it means they took out a loan and failed to repay it as agreed — and any attempts to recover the debt or enter into a payment arrangement were unsuccessful. This isn't just a red flag — it’s a clear warning sign.

You might wonder why this matters if the business — not the individual — is applying for the loan. The answer is simple: a business does not operate in a vacuum. It’s managed and run by people — and those people make the financial decisions, including how borrowed funds are used and whether repayments are made on time.

If a director has previously defaulted on personal credit obligations, it raises serious concerns about how they’ll handle business debt. A judgment implies a disregard for financial commitments — and that behavior is highly relevant when evaluating risk. As the saying goes, past behavior is the best predictor of future behavior.

Additionally, if your personal accounts are currently in arrears, it suggests financial distress. This increases the risk that funds from the business — even if it's performing well — may be diverted to address personal financial issues, which jeopardizes the business’s ability to meet its obligations.

In short, your personal credit history — both past and present — plays a pivotal role in a lender’s decision to fund your business. If your credit profile raises concerns, it can severely limit your business’s ability to access capital, even if the business itself is performing well. As a director, it is therefore essential to maintain a strong repayment record on all personal credit obligations and loans.

In our next article, we’ll cover practical steps you can take to improve your credit record — so you can unlock more business funding opportunities and support your company's growth.

Maano Capital Pty Ltd, 2013/181382/07 is an authorized financial services provider (FSP 55112) and a registered credit provider NCRCP22459.