When Your Business Loan Affects Your Personal Credit

Small business borrowing is generally not reported on owners' consumer credit reports unless they fail to pay on time. But with banks facing rising defaults, at least one lender is moving to add small business loans to borrowers' consumer credit files, meaning small business owners could soon find that their business debts are affecting their personal credit. Any debt that owners personally guarantee—including many business loans and credit cards—could be reported.

Firm Gives Loans When Banks Won't - And, Yes, There's A Catch

Rather than issuing a monthly bill, On Deck automatically deducts small payments every day directly from a borrower's checking account. For instance, one client received a loan from On Deck for $15,000 at a quoted 21 percent interest rate. Five days a week, On Deck debits $71.48 from the company's checking account.

Advanta Dumps One Million Small Business Customers

Advanta's move is one of the most extreme retreats in the credit-card industry, which is being racked by record delinquency and default rates. While Advanta is a tiny player overall, with about $5 billion in outstanding card loans compared with $176 billion at J.P. Morgan Chase & Co. as of March 31, Advanta focused solely on small businesses.

Snipping Credit Lines for Small Businesses

In many cases the businesses whose lines were cut had not missed loan payments. Instead, their credit score or their financials had deteriorated, and credit-line agreements typically give banks the right to change the terms of the line if there is a change in the borrower's financial situation. In this case, the changes in the terms are dramatic. If business owners can't convince Chase of their creditworthiness, they have three options: 1) pay off the balance in full; 2) agree to a conversion of the line of credit into a term loan; or 3) go into default.