Bad Personal Credit - Leverage Options

January 22, 2021

by a searcher from Georgetown University in Waterloo, ON, Canada

Due to a failed startup I had funded through credit, I am sitting on a pretty low score.

Any ideas what this will mean for leverage? If there is no PG, will a lender pull personal credit?

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Reply by a lender
from Clemson University in Reston, VA, USA

It really depends on the type of transaction you are looking to finance and the type of collateral. If it's a term note and you are looking to purchase a company that already has great margins, there may not be a need. Also if the A/R is government, probably won't pull credit. We as banks like to see the management experience and if there are mitigants around the credit score, then we can address them. Credit in our eyes is a character trait, do you have the willingness to repay us. That's the question, so if everything else is good and there is one blip, we can get past it, but if there are multiple problems, then probably not.

Reply by a lender
from Columbia University in San Francisco, CA, USA

Lenders will often look at credit histories of owners or management, even if they're not requiring a PG. Management experience is also reviewed, so the history of the earlier venture may come up even with no credit pull. We try to take a holistic approach when underwriting deals, which starts with the fundamentals of the business itself. If those are strong, we look at whether there are ways to mitigate identified risks. Hope this helps some and feel free to PM me, if it's helpful to discuss further.

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