Understanding Credit Checks
Know how credit searches work when applying for business finance, and how to protect your credit score throughout the process.
How Credit Checks Work in Business Finance
When you apply for business funding, lenders will typically check the creditworthiness of both your business and its directors. Here's what to expect.
1. Initial Application
You submit your application with basic business and director information
2. Soft Credit Search
Lenders perform a soft search on the business and directors to assess eligibility
3. Hard Search (If Proceeding)
Only when you choose to accept an offer will the lender conduct a full credit check
Important: Each lender may work slightly differently. Your dedicated broker can always explain upfront exactly how each lender handles credit searches - just ask.
Soft Search vs Hard Search
Understanding the difference between these two types of credit checks is crucial for protecting your credit score.
Soft Credit Search
Also called a "soft inquiry" or "quotation search"
A soft search allows lenders to check your creditworthiness without leaving a visible mark on your credit file. Only you can see soft searches on your own credit report.
- Does not appear on your credit file
- Won't affect your credit score
- Allows lenders to assess eligibility
- No obligation to proceed
✓ Safe to have multiple soft searches - they won't affect your credit score
Hard Credit Search
Also called a "hard inquiry" or "credit application"
A hard search is a full credit check that other lenders can see on your credit report. This is typically only performed when you formally proceed with a credit application.
- Appears on your credit file for 12-24 months
- Multiple hard searches can lower your score
- Only performed when you accept an offer
- Shows lenders you're actively seeking credit
⚠ Only performed when you choose to accept an offer and proceed
Avoid Too Many Hard Credit Searches
Multiple hard credit searches in a short period can negatively impact your credit score. Lenders may view this as a sign of financial difficulty or desperation for credit, which could affect your ability to secure funding.
What to Avoid
- ✗Applying to multiple lenders directly
- ✗Submitting numerous credit applications at once
- ✗Accepting multiple offers simultaneously
What to Do Instead
- ✓Work with a broker who uses soft searches
- ✓Compare offers before committing
- ✓Only proceed when you've found the right deal
How We Help Protect Your Credit Score
When you work with Capital Business Loans, we match you with suitable lenders using soft searches wherever possible. This means you can explore your options without damaging your credit score. A hard search takes place when you've reviewed the offer and decided to proceed.
Credit Checks on Business & Directors
Lenders will often perform credit searches on both the business entity and the individual directors or shareholders who are added to the proposal.
Business Credit Check
Lenders review your company's credit history, any outstanding debts, CCJs, and payment history with suppliers
Director Credit Checks
Personal credit history of directors is reviewed, especially when a personal guarantee is required
Ask Your Broker Upfront
Every lender works slightly differently when it comes to credit searches. Some may only use soft searches until you sign an agreement, while others may conduct a hard search earlier in the process.
Our expert brokers can explain exactly how each lender on our panel handles credit checks, so you always know what to expect before proceeding.
- Ask about soft vs hard search timing
- Understand which directors will be checked
- Know exactly when hard searches occur
Questions About Credit Checks?
Our team is happy to explain exactly how credit searches work for your specific situation. No question is too small.
Got Your Questions Answered?
Now that you know more about our process, let's start your application.
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