Think Twice About Signing a Lender's Credit Application

In the past 3-4 years, as borrowers had harder times finding business loans, they were forced to apply at more banks and other financing sources. For many borrowers this strategy has backfired because when you apply for a business loan the lender almost always checks your personal credit, too. Each subsequent lender can see who the last bank or lender was that looked at your personal credit.

This hurts you in two ways. First, numerous credit inquiries lower your credit scores, and many banks rely on credit scores nearly exclusively in making small business loans. Second, if a new potential lender looks at the credit report they will start by looking at the inquiries section first. They want to know where else you have applied for loans. Having too many inquiries makes you look desperate or, worse, casts a shadow on you and your company as being bad credit risks.

My company, offers its clients a solution to the problem. We urge our clients to completely fill out a bank credit application as completely as possible, and acquire copies of all three of your personal credit reports. Attach them to the application. By giving the lender your credit report they can make a decision without making a credit inquiry themselves.  Once you are sure you are going to do business with a lender you will need to sign their application and allow them to obtain their own credit inquiry.

Finally, attach the following letter to the application when they provide the bank the application. We urge them not to sign the credit application. You're right, don't sign it. You will have to plan on signing it when and if the lender wants to do business with you. Do sign the letter, however.

Here is an example cover letter:

XYZ Corporation

123 Anystreet

Anytown ST 00000

Date

Finance company or bank name and address here

XYZ Corporation is interested in exploring the possibility of doing business with your lending institution. However, before we can make any determination that your services are a fit for our company, we must complete our own due diligence of your lending institution as well as discuss with you the terms and conditions of your proposal.

As you have requested, we have completed your application, however it remains unsigned. By our signatures here we attest that we have completed your application accurately and know of no known issues that might affect your decision to grant our company credit.

We do not authorize you to make any personal credit inquiries of either of us until such time as we have determined that we are prepared to move forward with your proposal. At such time, we will grant you authorization. 

In order for you to have the ability to judge our personal credit, we are providing a copy of an Equifax credit report that shows all three major credit reporting agency information. We have hand written on the credit report any entries we believe to be in error. We do not authorize you to share this information with anyone outside your company and may only use it to determine our personal creditworthiness.

WE ALSO DO NOT AUTHORIZE YOU TO MAKE ANY UCC-1 FILINGS AT THIS TIME. Once we agree to do business together we will provide such authorization. 

Each of us who has signed below is a 20% or greater shareholder in our company.

Sincerely,

Sam Thacker is a partner in Austin Texas based .

His direct email address is: sam@lesliethacker.com.