Is My Credit Score Affected by the Application Process?

At FundLocal, we understand that business owners may be concerned about how applying for financing could impact their credit score. To make the process as smooth and stress-free as possible, we use a soft credit check during the initial stages of your application, which does not affect your credit score. This allows you to explore your financing options without worrying about any negative effects on your credit.

This guide explains how FundLocal’s credit check process works, what you can expect during the application, and how your credit score may be impacted (or not) throughout the process.

A soft credit check, also known as a soft inquiry, is a type of credit check that does not affect your credit score. Soft credit checks are typically used for pre-approvals, background checks, or when lenders want to evaluate your creditworthiness without a full inquiry.

• No Impact on Credit Score: Unlike a hard inquiry, a soft credit check does not lower your credit score.

• Used for Initial Quotes: FundLocal uses soft credit checks during the application process to provide you with an initial no-obligation funding quote.

How a Soft Credit Check Works at FundLocal:

• When you apply for a Business Line of Credit, Working Capital Loan, or Equipment Financing, FundLocal performs a soft inquiry to assess your business and personal credit without affecting your score.

• The soft inquiry allows us to evaluate your creditworthiness quickly and give you a funding offer.

In most cases, FundLocal does not require a hard credit check for the initial quote or for processing smaller loans and lines of credit. However, for larger loans or certain applications, a hard credit check may be conducted during the final stages of approval.

• When a Hard Credit Check Might Be Used: If a hard credit check is required, FundLocal will notify you in advance and explain the next steps.

• Impact on Credit Score: A hard credit check may temporarily lower your credit score by a few points, but this is common in most financing situations and should not have a long-term negative impact as long as you manage your credit responsibly.

Here’s a step-by-step breakdown of when and how FundLocal conducts credit checks during the application process:

1. Initial Application and Soft Credit Check (No Impact)

When you submit your initial application, FundLocal performs a soft credit check, which does not affect your credit score. This inquiry allows us to provide a no-obligation quote for funding and assess your basic creditworthiness.

• No Impact on Credit: Your credit score remains unchanged during this step.

• Quick Approval: The soft credit check allows FundLocal to evaluate your application quickly, often resulting in a same-day funding offer.

2. Quote and Offer (No Impact)

Once the soft credit check is complete, FundLocal will provide you with a funding offer, including details on the loan amount, interest rate, repayment terms, and any associated fees. You can review the offer without any pressure to proceed.

• No Obligation: You are free to accept or decline the offer with no impact on your credit score.

• Transparency: FundLocal is transparent about the terms of the offer, allowing you to make an informed decision.

3. Final Approval (Hard Credit Check Only If Necessary)

For most loans and lines of credit, no hard credit check is required. However, for larger loan amounts or if additional verification is needed, a hard credit check may be performed during the final approval process.

• Advance Notification: If a hard credit check is required, FundLocal will notify you in advance and explain the impact.

• Minimal Impact: If a hard inquiry is conducted, your credit score may drop by a few points temporarily, but it should recover quickly with responsible credit management.

1. Will applying for a quote affect my credit score?

• No, applying for a funding quote with FundLocal will not affect your credit score because we use a soft credit check for the initial application.

2. When might a hard credit check be required?

• A hard credit check may be required if you are applying for a larger loan amount or if additional verification is needed during the final stages of approval. You will be notified in advance if a hard credit check is necessary.

3. How much will my credit score drop if a hard inquiry is conducted?

• A hard credit check may lower your score by a few points, but this is typical for most financing applications. As long as you manage your credit responsibly, the impact should be temporary.

4. Will FundLocal notify me before conducting a hard credit check?

• Yes, FundLocal will always notify you in advance if a hard credit check is required, ensuring full transparency during the application process.

5. Can I improve my chances of approval without a hard credit check?

• Yes, keeping your business financials in good standing, maintaining positive cash flow, and providing complete documentation can improve your chances of approval without the need for a hard credit check.

Here are some tips to protect your credit score when applying for financing:

1. Apply Only When Ready

Although a soft credit check doesn’t impact your score, it’s important to apply for funding only when your business is financially ready. Submitting complete financial documents and ensuring positive cash flow can improve your chances of approval without the need for a hard inquiry.

2. Pay Down Existing Debts

If you have outstanding debts, consider paying down balances to improve your creditworthiness. Keeping your credit utilization ratio low (the amount of credit used compared to the credit available) can help you secure better financing terms.

3. Monitor Your Credit Report

Regularly checking your credit report can help you spot any errors or inconsistencies that may affect your score. Addressing these issues before applying for financing ensures a smoother process.

If you have any questions about how credit checks work or need more information about how FundLocal’s application process may affect your credit score, our support team is here to help! Contact us today for personalized assistance and explore your financing options with confidence.