Why Private Lenders Can’t Rely on Credit Reports Alone to Assess Risk

May 26, 2025

For many private lenders in the commercial loan space, it’s standard practice to pull the borrower’s credit reports to assess risk. On the surface, this seems reasonable—after all, credit reports are designed to show someone’s financial responsibility and risk. But in the world of commercial lending, this approach is not only incomplete—it can give lenders a false sense of security.

Personal credit reports are limited in one very important way: they only reflect loans or debts that the individual has personally guaranteed. This means if an executive signs off on a loan purely in their role as a company officer—and the company is the official borrower or guarantor—that loan will not appear on their personal credit report. In other words, a person can be the CEO of a company with millions in outstanding commercial debt, defaults, or foreclosures, and still show a spotless personal credit file simply because they didn’t sign as a personal guarantor. At Indelible Investigations, we’ve observed this exact situation numerous times.

To truly understand who you’re lending to, you need more than a FICO score.

A thorough due diligence investigation should be conducted for all parties involved in a commercial loan—including any guarantor entity and its executives, even if those individuals are not personal guarantors but are merely signing in their capacity as company officers. At a minimum, the investigation should include:

1)      Social Security verification

2)      Secretary of State verification

3)      Civil record searches

4)      Non-judicial foreclosure searches

5)      Bankruptcy searches

6)      UCC filings searches

7)      Fixture filing searches

8)      Tax lien searches

9)      Judgment searches

10)    Lis pendens searches

11)     Property ownership searches

12)    Adverse article/media searches

These searches can uncover both voluntary and involuntary liens, civil litigations and signs of financial distress that may not appear on personal credit reports—especially in cases where individuals are involved in loans solely through their corporate roles.

This deeper level of due diligence is especially important for private lenders who may not have a full legal or underwriting team like larger banks or institutional lenders do. That’s where outside services—like background investigation firms focused on commercial lending—can play a key role. Indelible Investigations helps identify hidden risks that don’t appear on credit reports, ensuring lenders aren’t blindsided after a loan is already issued.

Author - Paul Chang, Founder & Principal, Indelible Investigations