January 16, 2024

Navigating Credit Inquiries: Hard and Soft Pulls Unveiled

For small business owners, managing credit is a critical aspect of financial success. Understanding the nuances of credit inquiries, both hard and soft pulls, is key to making informed decisions that impact your business's financial health. In this blog, we'll dive into the world of credit pulls, shedding light on how they affect small business owners, and introduce the concept of soft credit pulls, offering a comprehensive guide for navigating credit inquiries in the entrepreneurial landscape.

What are Hard Credit Pulls for Small Business Owners?

Hard credit pulls remain an essential part of the small business credit landscape. They occur when you, as a business owner, apply for credit, whether it's a business loan, credit card, or other financing options. Lenders use hard pulls to assess your creditworthiness, helping them make informed decisions on whether to approve your application and establish the terms of the credit.

When Do Hard Credit Pulls Occur?

Hard credit pulls can happen in various scenarios for small business owners, including:

  • Business Loans: When applying for a business loan, lenders typically conduct a hard credit inquiry to evaluate the financial health of your business and your personal credit history.

  • Business Credit Cards: Applying for a business credit card may also trigger a hard credit pull, as issuers assess the creditworthiness of both the business and the business owner.

  • Leasing Commercial Space: Some landlords or property management companies may perform hard credit pulls when small business owners seek to lease commercial space.

  • Vendor Credit: Certain suppliers or vendors may check your credit when establishing a credit relationship, especially if your business requires terms for payment.

Understanding Soft Credit Pulls

In addition to hard credit pulls, small business owners should be aware of soft credit pulls. Soft inquiries do not impact your credit score and occur in situations where a lender or entity checks your credit report for informational purposes. Common scenarios for soft credit pulls include:

  • Pre-Approval Offers: Lenders may perform soft pulls to pre-approve you for credit offers without affecting your credit score.

  • Background Checks: Some business partners or potential investors may conduct soft inquiries as part of due diligence or background checks.

  • Personal Credit Monitoring: Monitoring services and credit bureaus often use soft pulls to provide you with updates on your credit report without impacting your score.

Impact on Credit Scores

Hard credit pulls can have a temporary impact on your credit score. While a single hard inquiry may only result in a minor dip, multiple inquiries within a short period can be more consequential. They might even suggest that a business is struggling financially or taking on too much debt. Lenders may view this as a higher risk, leading to less favorable lending terms or even denials. While the impact is usually short-lived, lasting for about 12 months, it does affect your credit score calculation.

Soft inquiries, on the other hand, have no impact whatsoever. Small business owners can leverage the benefits of multiple soft pulls for informational purposes without worrying about adverse effects on their credit profile.

Mitigating the Impact and Maximizing Opportunities

  • Understanding Soft Pulls: Embrace the advantages of soft credit pulls for informational purposes without fear of negative consequences on your credit score.

  • Strategic Planning: Plan credit applications strategically to minimize the impact of hard pulls. Avoid applying for multiple types of credit within a short period, as this can lead to cumulative effects on your credit score.

  • Conserving Resources: Each hard credit inquiry consumes time and resources. Avoiding unnecessary inquiries helps businesses focus on more viable lending options and saves resources that can be better utilized in other areas of the business.

  • Credit Monitoring: Regularly monitor your business and personal credit reports to stay informed about inquiries and ensure accuracy. Address any discrepancies promptly.

For small business owners, navigating the landscape of credit inquiries involves understanding both hard and soft pulls. While hard inquiries are essential for securing financing, soft pulls offer informational benefits without affecting your credit score. By strategically managing credit applications and staying informed about your credit report, you can make informed decisions that contribute to the financial well-being of your business.

Since 2008, Fora Financial has distributed $4 billion to 55,000 businesses. Click here or call (877) 419-3568 for more information on how Fora Financial's working capital solutions can help your business thrive.