10+ Types of SBA Loans Compared for Your Business

10+ Types of SBA Loans Compared for Your Business


Small Business Administration loans are a lot like “regular” bank loans with comparable rates and fees. So why get one?

The SBA loan usually requires a smaller down payment. Since the loan is guaranteed by the SBA, the financial institution will more readily award the loan. The payback term for a working capital loan can be up to 10 years. If you’re purchasing real estate, the term can be up to 25 years. Interest rates are reasonable. Longer terms translate into smaller payments. You can write off money paid on interest.

And of course, you’ve heard that time is money. That’s particularly true with your SBA loan application. Don’t have a lot of money in the equity of your small business? The SBA may look at the amount of time you’ve invested in your business, and consider your time to be equity.

Small business owners would be wise to get with the program. By the end of August 2019, the most common SBA loan program for small business owners (the three options in the SBA 7 (a) loan program, see below) had doled out $20.9 billion. The CAPLine financing program had loaned $255 million (for exporters, see below).

Want some of that loan money? Here’s what you need to know about the loans.



What is an SBA Loan?

It’s a common misconception the loan comes directly from the SBA. Not true. The loan comes from a bank that participates in the SBA loan program. A participating bank will often have specific loan officers who work with the program.

SBA loans are loans made to small businesses and guaranteed by the SBA. An SBA loan is issued by a participating lender approved by the U.S. Small Business Administration — and not by the SBA itself. So if you want to apply for an SBA loan, you have to find an SBA-approved lender.

Remember the SBA wants to help business owners. In fact, the SBA is dedicated to helping small business owners grow and improve their operations – and their bottom lines.

The SBA guarantees a percentage of the loans for the bank. That gives the lenders an important reason to favorably consider a loan application. It is because of this guarantee that SBA participating banks are more apt to loan money. You can get a loan even if you don’t fit the standard criteria for a loan.

Many banks, from large chains to neighborhood banks, are SBA-approved lenders. You can find out if your bank participates in the SBA loan program via a search on the SBA website.

Go to www.sba.gov. Search for approved lenders. You’ll also find a handy loan application checklist so you’ll be prepared when you sit down with lenders and ask for financing.

What are the Different Types of SBA Loans?

Before you begin the application process, find out about the various loan types that the SBA offers. There are many options. Among them, you should find one that is the best fit for your company. Research the various programs and determine which one fits your needs.

You can get a lump sum loan or a line of credit. The most popular types are the SBA 7 (a) loans. There are 3: the standard 7 (a) loans, the 7 (a) small loan, and the SBA express loan. The 7 (a) loan offerings are lump-sum loans. The SBA Express is a line of credit. A CAPLines loan is a line of credit, and one of the two most popular loans. The line of credit loan is used by small businesses that are seasonal, such as a contractor business or builder business.

However, the SBA has a number of programs. The full list of SBA loan types is:

Types of SBA Loans

Standard 7(a) Loan

Standard 7 (a) Loan has no minimum amount and can provide a maximum loan amount of $5 million. A business owner can use it for a variety of purchases, such as equipment upgrades. If you’re borrowing less than $25,000 for your business, you won’t need to provide collateral.

When the loan is higher than $25,000, the lenders require an amount of collateral by percentage comparable to the loan amount. If the loan is higher than $350,000, lenders must collateralize the amount.

In addition to your business financial records, you’ll be asked to complete paperwork specific to the SBA loan program. It’s worth it. Since the lenders know the loan is backed up to 85% by the SBA, there’s built-in security to providing the loan.

7(a) Small Loan

As it sounds, the SBA 7 (a) loan has a smaller maximum loan amount. The maximum in this 7 (a) loan program is $350,000. For loans up to $150,000 the SBA guarantees the loan up to 85%. For more than $150,000 the SBA guarantees the loan up to 75%.

The collateral requirements are the same as they are with the SBA Standard 7 (a) loans. Business owners report a slower application process but better repayment terms

SBA Express

Need a loan in a day and a half? The SBA Export Express is a line of credit up to a $350,000 loan. Small business owners can get the loan in 36 hours.

The SBA guarantee amount is lower at 50%. The loan is a revolving line of credit which most commonly must be repaid in 7 years. Borrowers may be able to get an extension.

Export Express

Of all types of SBA loans, this one is the fastest with a turn around within 24 hours. Small businesses specifically dealing with exports can get up to $500,000.

The money can be used for a variety of purchases, such as equipment, real estate and inventory.

Export Working Capital

This SBA loan is tailored for small businesses that need funds specifically related to exporting. The loan program will provide up to $5 million of working capital. The repayment terms are strict, payback in one year or less.

International Trade

The SBA International Trade Loan is a term loan specifically for financing assets and working capital for export business. The financing for this loan program is provided by GBC International Bank. The SBA guarantees the loan for 90% up to $5 million.

Veterans Advantage

This SBA offering is basically a 7 (a) loan for Veterans and Veterans’ families. The business must be at least 51% owned by a Veteran, which includes active service members, spouses, widows and widowers of Veterans, active reservists and members of the National Guard.

The terms of fees and rates change annually in response to the health of the business climate. For example, in 2018, under the program, a borrower could get from $700,000 to $5 million, with a 3.5% guarantee fee. In the same year, for a loan up to $125,000, the SBA guarantee was 85% with no fees.

CAPLines

SBA CapLines loans are lines of credit. These types of loans are mainly used by a business that needs some working capital for a specific time of year.

The SBA has four kinds of CAPLiines loans: Seasonal, Contract, Builders and Working Capital.

The Seasonal loan is primarily used by a business that needs to bolster accounts receivable and inventory during a specific time of the year. An example could be a small ski lodge which needs to upgrade rental equipment and pay for snowmaking before the ski season begins.

The Contract loan, just as it sounds, is a loan typically used by a business that has been awarded a contract, but will need to pay for labor and material during the life of the contract. The business needs some funds to pay employees and buy materials until the business is paid. A Contract CAPLines loan could be used by a road paving company, which has been awarded a contract by a town or county. The road paving company won’t be paid for the work until it is completed, and needs a loan.

The Builders loan is another one that is aptly named. The loan is tailored for the independent general contractor or builder who needs to pay employees and buy material upfront. Think of a house builder who needs to buy drywall and pay drywall finishers as part of a house project.

The Working Capital loan is tied to the assets of the business. The business needs a loan until assets are converted into cash. The business repays the loan by selling those assets. An example could be an artisan who creates a product, such as paintings or artwork.

SBA Microloans

Microloans are very small loans from $500 to $50,000. An SBA microloan is obtained through an intermediary organization approved by the SBA, often called microlenders.

Who are these microlenders? Under this SBA loan program, the microlender can be an individual or private entity. The individual or entity receives the repayment of the loan principal plus interest.

The SBA microloans are structured and were created to assist a small business that is owned by women, veterans or minorities.

In one facet of the loan program, the SBA provides loans and grants directly to eligible non-profit microlenders. The non-profit microlender then provides SBA loans to a business that needs funds for start-up costs, training of employees or technical assistance.

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504 Loan

The 504 Loan was also known as the Certified Development Company program loans. The loans are for financing the purchase of fixed assets. Fixed assets include real estate, buildings and machinery. The maximum loan amount is $5 million.

The Small Business Administration and lenders cooperate to keep the borrower’s costs as low as possible. The buyer needs a 10% down payment. The SBA kicks in 40% and the lender provides 50%.

As has been said, it takes money to earn money. In order to qualify for a 504 loan, the applicant must have a net worth of $15 million.

A business may qualify for a second 504 loan for manufacturing projects, especially energy-efficient projects.

Special SBA Loans

In addition to regular SBA loans outlined above, the SBA also has other types of loan programs for unique situations. These include Disaster Loans, Economic Injury Disaster Loan.

As the COVID-19 pandemic continues to unfold, a business looking for financing might opt for one of the SBA disaster loans. The loan amount is up to $25,000 and is designed to have quick turnarounds. A disaster loan is a solution to financing problems while you’re waiting to get a separate loan.

For more information, check out:

SBA Loan Type Comparison

Loan Type Maximum Amount Description Qualification
SBA 7(a) Loan $5 million Standard, for business purchases Standard plus SBA forms
7(a) Small Loan $350,000 Like the Standard, lesser amount Standard plus SBA forms
SBA Express $350,000 For a business in 36 hours Standard plus SBA forms
Export Express $500,000 For exporters need in 24 hours In business for 12 months
Export Working Capital $5 Million For exporters, one-year term Guarantee from owners
International Trade $5 million For fixed assets, working capital Prove to create markets
Veterans Advantage $5 million The 7 (a) loan for Veterans Biz 51% owned by Veterans
CAPLines $5 million Short term lines of credit Signed contracts, assets
SBA Microloans $50,000 For Women, Veterans, Minorities Vets, women, minorities
504 Loan $5 million Financing purchase of fixed assets including include real estate, buildings and machinery $15 million net worth

Pros and Cons of SBA Loans

There are many types of SBA loans and that in itself lands on the Pro side. As a business owner, you’ve got a menu of choices for types of loans, the loan amount and lenders to approach.

Although the Small Business Administration actively promotes and supports its business loan program, some in the business world have a negative opinion about the SBA loans program. They say the path to financing is clogged with too many hoops.

Is that con unjust? Let’s take a look at the pros and cons of SBA loans.

Advantages

The SBA 7 (a) loan program is the most common SBA financing tool. Since the SBA backs the SBA 7 (a) loans, lenders may more favorably consider financing the business application. The SBA 7 (a) loans have 3 forms, based on the amount sought from lenders and how fast the business wants to get the money.

Exporters have similar choices in types of loans and the speed in getting the money. With the CAPLines loans, the lenders provide a line of credit for a type of business that has peak times of operation. A business with a peak time could be a seasonal business or a business that depends on contract work.

On the plus side, lenders which participate in the SBA loans program are familiar with all the steps in the process. It’s the lender who collects information about your credit and makes sure your application package is complete before sending it to the SBA.

Disadvantages

There are two complaints about SBA loans: a large amount of paperwork and interest rates.

Yes, more paperwork is required for SBA loans. The SBA paperwork is in addition to the standard information about the business, such as income and expenses, existing credit obligations and assets, such as real estate.

Interest rates for a line of credit loans such as the CAPLines loans range from 6.75 to 9.25%. Those loans also include a one-time guarantee fee which can range from 2 to 3.75%.

The lump-sum loans interest rates are tied to the prime interest rates, which in March 2020 was 4.75%. In the SBA loans program, the lump sum loan interest rate is a fixed rate based on the amount borrowed, plus prime.

As of March 2020, the interest rate for SBA loans was 8% for up to $25,000, or 12.75% in total. For $25,001 to $50,000, the SBA loans interest rate was 7%. For $50,001 to $250,000, the SBA loans interest rate was 6%. More than $250,001, the interest rate of SBA loans was 5%.

If you feel those interest rates are high, you may not have tried for a personal loan lately. In 2019, the interest rate for personal loans ranged from 12 % to 36%. To get the lowest rates, the applicant needed a credit score of 750.

Of course, interest rates for loans vary. For up-to-date checks of the SBA interest rates for loans, go to www.ssbalenders.com.

Are SBA Loans Hard to Get?

SBA loans can be hard to get because of a major Catch-22. In order to get an SBA loan, you must have tried for another type of loan but been refused. You must have the paperwork to be able to prove that happened.

The credit score minimum is currently 680, which is not set by the SBA. It is a number SBA participating lenders set for prospective loan applicants. If your credit score is lower, don’t bother applying.

The SBA loan program is only for US businesses that have been established for 2 years. The business credit and your credit must be excellent. There can be no history of loan defaults.

You’ll have to fill out additional paperwork beyond a typical loan application. For example, SBA 7 (a) loans include SBA form 1919. SBA form 1919 must be completed by all owners of the business. An owner is defined as anyone with 20% or more interest in the business. SBA form 1919 must also be completed by all officers and directors, managing members, and any person who is hired to manage the operation of the business.

Additional paperwork required for an SBA 7 (a) loan program includes the SBA form 912, which is a statement of personal history. This is basically a resume of a person’s education and work history. If the business is a sole proprietor, the SBA also requires form 413, which is a financial analysis of the proprietor.

For loans associated with an export business, a business applying for the SBA loans program may have to prove ventures. To apply for Export Express or International Trade loans, the business must prove it is expanding into new markets. The Export Working Capital loan requires a personal guarantee from all owners of 20% of the loan amount.

What Does it Take to Qualify for an SBA Loan?

To qualify for any SBA loans, you must have a credit score of at least 680. Although requirements vary by type of loan, you may need to put up collateral.

You’ll need to complete lots of paperwork. But you already have the nuts and bolts. For starters, you’ll need the same basic documentation, such as proof of income or business profit, and a list of assets.

The center of the paperwork for SBA 7 (a) loans is that SBA form 1919. For any of the SBA loans, you can get a head start by going to the SBA website and downloading the forms you need. The 7 (a) loans are the most common.

If you put in the time to qualify for an SBA loan, you’ll get a “timely” reward. Payback terms can range from 10 to 25 years.

Where to Get an SBA Loan

To get an SBA loan, you must start with an SBA approved lender. Check with your current bank, as it may already be approved for SBA Loans. You can find a list of approved lenders at https://www.sba.gov/lendermatch].

You can find a list of private investors willing to lend microloans by checking at https://www.sba.gov/partners/lenders/microloan-program/list-lenders].

Let’s review the process, step by step:

  1. Determine your eligibility by setting up a meeting with a bank loan officer.
  2. Organize all your paperwork. The main documents you’ll need are business financials, projected financials, a business profile, tax returns, your loan application history, and information about leases (if it applies).
  3. Draft a cover letter. The cover letter should explain the company identity and what it does. It should also include the background of the owner or owners.
  4. Fill out the SBA forms. A checklist of required forms for each type of loan is on the SBA website. The basics are Form 4 (the application); exhibit A, the schedule of collateral; Form 912, the statement of personal history; Form 413, your personal financial statement; and Form 159, the fee disclosure and compensation agreement. Those are the basic forms of all the loans. There may be additional paperwork specific to the type of loan.
  5. You’ll hear from the bank once the lender determines you pre-qualify.
  6. If you pre-qualify, you’ll get a proposal from the bank.
  7. If you accept the proposal, your loan will move to the underwriting stage. During this stage, the go through your information. You should hear in 2 weeks if they approve or decline the loan.
  8. Closing – the lender finalizes the terms of the loan and you sign the documents.

Try an SBA Loan

After going through the process, you will either agree or disagree with the following statement. “Applying for an SBA loan is time-consuming and complex.” But you will disagree with that statement if you are well prepared.

At your initial meeting with a loan officer, be clear about exactly what you are seeking in a loan. Then save yourself time and money by getting organized.

Are you ready to embark on the SBA loan program? There’s no time like the present, and you’ll never know until you try.

Image: Depositphotos.com




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Small Business Loan Requirements – and How to Meet Them

Small Business Loan Requirements – and How to Meet Them


Reeling from these tough economic times, you may be considering a loan for your business for the first time.

How do you get a small business loan? Should you apply to an online lender? Try to get a loan through a bank? Go through the Small Business Administration (SBA) for financing?

Many loan requirements are the same for the application process. Lenders and the SBA have specific conditions you must meet in order to get a loan. But with some loans and lenders, there is a protection program to ensure that you are safe.

An SBA loan may have special requirements that differ from the requirements of traditional loans. Every lender uses certain evaluations to determine your ability to repay.

Lenders look at bank statements, assets in the business, financial statements, debt service coverage ratio, and personal and business credit score (present and history). Lenders also want you to have a sound business plan.



Get Your Ducks in a Row

Did you ever change the business name, physical address, or phone number? Are these changes on past bank statements, tax forms, incorporation papers, utility bills, and websites?

In other words, Joanie’s Pet Sitting is not the same as Joanie’s Pet Sitting LLC. Joanie’s Pet Sitting, Virginia Beach is not the same as Joanie’s Pet Sitting, Norfolk.

If a business name, address, or phone number changes, the change should be made on every license and document related to the business. You can’t rewrite former financial records. But you can include documentation that supports the business history. You can include a letter of explanation as well.

The main concern of a lender is to determine your ability to repay the loan. Here’s a look at the key pieces of the loan application puzzle.

Top 8 Small Business Loan Requirements

Here are the top 8 small business loan requirements and how to qualify for a loan:

Personal Credit Score

Your personal credit score carries a lot of weight in the business loan application process. For many types of business loans, when you as the owner of the business sign on the dotted line, you are guaranteeing payment of the loan.

This is especially true with fledgling small businesses that are still building a history of tax returns. Don’t worry if your business is relatively new. You may still get a loan if you have an excellent personal credit score and all the business owners have good credit scores. If your business has multiple owners, the lender may want to see a credit score from each. The loan amount will be closely tied to those scores.

Some lenders may require the business to be operational for a minimum of 2 years. If the business has 2 or more years behind it, lenders may look at a business credit score. That score comes from a business credit bureau, such as Dun & Bradstreet.

Action to take: Before applying, business owners should check their personal credit score to make sure all the information is correct. Get credit scores from each owner. Clear up any inaccuracies. Some credit report monitoring services have suggestions for improving your score, and you may be able to bump your score up a bit if you have time. In borderline cases, it could be enough to net you a better interest rate or other terms.

Work to improve your credit score. Schedule payments to make sure you make them on time, reduce your debt, open a business credit card and keep you utilization of available credit low.

Bank Statements and Ratings

What do lenders look for when they examine your bank records? Lenders look at seasonal fluctuations in income, debt to income ratio (see below), and tax obligations.

When you’re borrowing from a bank, the bank will assign a rating. The rating is the total amount of borrowing capacity you have from that bank.

The date you opened a business bank account is used as the start date for your business. The longer your business has been established, the more likely you are to qualify for a loan.

There are contributing factors to favorable bank ratings. Ideally, your average daily balance should be above $10,000 for 3 months. Manage your bank accounts to keep the average daily balance as high as possible. Avoid overdrawing your account, and set up overdraft protection.

It’s not enough to just have the money sitting there. Your business should be generating a steady volume of regular deposits.

You also should have a bank reference, who is the person you work with at the bank. In other words, a person who will vouch for you as bank officials consider your loan.

Revenue/Balance Sheet

Of course, revenue is important. A business must make money to stay afloat, and pay the requested loan.

But revenue is just one of the important numbers that help businesses get loans. Revenue is part of a balance sheet.

The balance sheet includes assets, liability and owner equity. The assets of businesses are subtracted from the liabilities of businesses. The calculated amount of owner equity is added to that number. That number is an estimate of what the business is worth. That number must be reasonable in comparison to the loan amount sought.

Action to take: Chip away at the amount of liability every chance you get. It’s a lot like paying off a credit card. Just paying interest keeps you treading water. Applying even a small amount of money monthly to principal debt will show a positive change and attention to the health of the business.

Debt-to-Income Ratio / Cash Flow

Think of the balance sheet as a snapshot of your business. The debt-to-income ratio, or cash flow, is a monthly snapshot.

Each month, after expenses are paid, how much money is left? This number shows the lender how much of a loan payment you may be able to handle monthly.

Lenders may also do a comparison of accounts receivable to accounts payable. You won’t be able to “pick your best month” as an example. The lender will do that comparison the month you are asking for a business loan.

What’s the number that a lender wants to see for a debt service coverage ratio? A lender typically wants to arrive at a calculation that is less than 1.25 or 1.35 times your expenses. That calculation of expenses will include the payments you’d be making on the loan you are seeking.

How does the lender get to that debt service coverage ratio number? Typically, the lender divides the annual net operating income by the total principal and interest of all debt obligations.

Here are the highlights of what a lender will analyze: gross margin, cash flow, debt to equity ratio, accounts payable, accounts receivable and earnings (before interest, taxes, depreciation and amortization).

Lenders prefer to see financial statements that have been audited by a certified public accountant. You can have financials reviewed by a CPA – which is faster and cheaper – but some lenders require audited financials. Find out what the lender requires.

Action to take: Accounts receivable will only include goods or services that have already been invoiced. Make sure you are invoicing promptly. And of course, make sure you are paying your bills promptly. Proving that you are up to date with sending out bills and paying bills shows the lender that you have a good process in place for money management.

2+ Years in Business

For a Small Business Administration lump-sum loan, your business has to have been running for 2 years. There are SBA loans that don’t have that requirement, such as many of the line-of-credit loans and the SBA microloans.

To get a business loan from the SBA, you’ll need to present tax returns for the past two years that prove the existence of the business.

Action to take: Organize your tax returns. Put them on a disc or into another format that is easy to provide to a lender. Provide a business credit report. Provide the applicant’s credit report and get copies of the credit scores of all owners.

Type of Industry

To get an SBA loan, businesses must meet the requirements according to the SBA’s definitions of small business. Those definitions vary by type of industry.

The SBA definition of small business is two-part: by the number of employees or by the average annual receipts (gross income).

The gross income is averaged over 3 to 5 years. If the business hasn’t been around for more than a year, the gross income is calculated by the average weekly income times 52.

The number of employees is calculated as the average number of employees per pay period. This includes part-time employees. The average is calculated using a 12-month period.

For a look at the SBA requirements under the type of industry, go to www.sba.gov/document/support–table-size-standards. It’s an interesting read and may make you realize just how big or small some small businesses are.

For example, a cheese manufacturer can have up to 1,250 employees, and be considered, well, small cheese. A flower or nursery stock wholesaler may have no more than 100 employees.

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Businesses can make a lot of money and still be considered small. For example, a home health company can have yearly revenue of up to $16.5 million. A baked goods store can make up to $8 million.

Action to take: If you think your business is too big for a small business loan, think again. Check the Type of Industry chart to learn the requirements. You may be pleasantly surprised to find out you can apply for a small business loan. Get familiar with the numbers for employees by the type of business. Since part-timers are also counted, you might be getting close to going over the requirements. To qualify for an SBA loan – with better rates and longer payback terms – you may consider combining part-time positions to full time.

Collateral or Assets

Not all lenders require that you put up collateral to get a loan for business use. But for those lenders that do, you may have to list assets on your loan application.

Lenders like to see assets that they can easily use (seize) if needed to cover your loan obligation if you fail to repay.

Assets include business real estate, inventory and business equipment. It’s important to know that collateral can also include funds from accounts receivable. That can include monies that have been invoiced but haven’t yet been paid to the business.

If you can’t pay the loan, the lender can seize the assets. For real estate and equipment loans, a UCC (Uniform Commercial Code) statement may be filed to claim accounts receivable and other collateral.

If you don’t have sufficient assets, a lender may require personal guarantees. This is not a good option. This type of loan backing puts your personal assets at risk as well as the assets of the company.

Action to take: Yikes! Imagining a future where you lose business real estate and inventory may give you pause as you list those items on your loan application. Scary stuff. But it’s a given that those who are confident enough to start and operate a business have already demonstrated determination and boldness. Taking out a business loan is a risk, but growth doesn’t come without risk.

Business Plan

Lenders don’t often ask to see a business plan from those seeking loans for businesses. But adding information about the plan to your application may make your business stand out from others looking for a loan.

It’s like adding a brilliant cover letter to your resume. Of course, the application information includes bank statements, information about the owner’s (or owners’) credit score.

You may also include information about the nuts and bolts of your company. Let the lender know what you do and how you make money.

Also, include information about how the loan fits into your plans for the business. Let the lender know how you place the spend the proceeds of the loan. Provide realistic financial projections for future growth

If applicable, include market information and details on the status of your business niche. Describe how demand for your products and services is growing. Make projections to predict future growth.

Action to take: As you prepare to apply for the business loan, gather the paperwork needed to document your business plan. Include bank statements, information about personal credit/credit score and business expenses. These are the black and white proof of your ability on paper to pay the loan.

Add the missing piece to make your application for a business loan stand out from others. The average person on a lender review team may have no knowledge of what your business is.

For example, let’s use a business that makes something called a Skid Plate. Piece of metal that goes under a car, huh? Would a lender want to grant a business loan for a company expansion? What if the lender knew that the Skid Plate was a patented new product, in huge demand in the race car industry, primarily NASCAR?

By adding an explanatory description of the business, you will be more likely to get a business loan.

FAQs About Qualifying for a Loan

Let’s review some quick facts about the application process for business loans.

Who Can Apply for a Small Business Loan?

Any small business can apply for a loan. You should be making a profit and have a good credit score. You should not be involved in any default action by any entity, including the US government. People in the loan business don’t like that kind of stuff.

If the business owner is going for a loan through the SBA, the requirements are different. The SBA requires that your business operates within the United States and has been operating for a minimum of 2 years. If you can’t meet those qualifications, don’t bother going through the application process.

Are Small Business Loans Hard to Get?

The business loans are not hard to get if the company has owners with good personal credit and has been making money.

If you or any of the company owners (20% ownership or more) have a bad credit score, you have little chance of getting loans through the SBA. The SBA won’t give loans to a businesses which aren’t making money. A startup entity may try for a microloan.

You may find although you were stressed out about how to land a business loan, the process was easy. If you’re already running a company, you’re good with paperwork. Or you’ve hired somebody who’s good with paperwork!

One of the main requirements for getting loans is being organized. Get your paperwork stuff together and go for it. Today you have more options than ever for getting business loans.

For more information see the Small Business Credit Survey1.

What Documentation Must I Provide?

Lenders require documentation for business loans and it varies by the type of loan. At a minimum, you will need to provide income tax returns, your credit score, bank account information, a business financial statement, and personal identification such as a driver’s license. For more information about loan paperwork, go to Business Loan Documents to Provide.

What is the Minimum Credit Score for a Small Business Loan?

Most lenders require a minimum credit score of 600-680 for a small business loan. That’s a minimum requirement for business loans from most lenders.

People who get a business loan from an online lender may be able to get around that qualification. Online lenders considering loans often value business revenue more highly. Do some shopping, as the loan amount is typically smaller with varying interest rates.

How Much Can I Borrow on a Business Loan?

The amount of money lenders award is directly connected to how much you can afford. It won’t be how much you think you can afford. It will be how much the lender determines you can afford.

That’s a good thing. A reputable lender has your back and doesn’t want you to fail.

Summing Up

It’s no shame to need a loan for your business. In fact, obtaining a loan for future expansions or growth is a standard part of nearly every business plan.

Getting a loan to expand the business is not a one time venture in a business plan. Often business owners take out and pay off a series of loans during the course of doing business. You can use the loans to finance purchases, such as real estate, equipment or fleet vehicles.

Business owners historically have borrowed about $600 billion each year, according to a study by the SBA. Typically about 40% of small company owners borrow money each year. And that doesn’t mean that business owners are landing huge loans.

The average size of a business loan, since 2016, has been about $600,000. But many of those applying for a loan borrow much less. More than half of the business applied for loans of less than $100,000.

It’s important to understand what lenders are reviewing when you apply for a loan. Understanding what’s important to get a loan will help you improve your chances, now and in the future.

Although additional paperwork is required for an SBA loan, you may be pleased to find that it is easier to qualify for one of their options. In fact, business owners often get SBA loans after being turned down for a traditional loan.

Yes, it can take some time to complete the application and get the loan. On the plus side, terms range from five to twenty-five years for paying off the loan. Loan interest rates are priced according to risk, which is also standard practice with conventional commercial loans.

No matter what type of business you have, it stands to reason that someday you’ll need a loan for improvements and growth. Take steps now that will help you qualify for a small business loan.

Information Sources

1 Fed Small Business. “Small Business Credit Survey

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What credit score do I need for a business loan?

What credit score do I need for a business loan?


When it comes to qualifying for a business loan, your credit rating is one of the most important factors that lenders consider. Below we answer some frequently asked questions (FAQ) about your creditworthiness for a business loan. <! – ->

What is considered a good credit score?

A good personal score for a business loan is 720 and more. A good business credit score is 80 or higher.

Note that different credit bureaus may have different rating systems. Each lender chooses its own standards. So there may be deviations in the evaluation levels. However, the Federal Reserve's 2020 Small Business Credit Survey (p. 12) sets the general rule for the small business credit industry:

  • Low credit risk: 80-100 business credit score or 720+ personal credit score.
  • Medium credit risk: 50–79 business credit score or 620–719 personal credit score.
  • High credit risk: 1-49 business credit rating or less than 620 personal credit rating.

<! – -> Borrowers with low credit risk receive the largest selection of credit products and the best conditions. High-risk borrowers have few options and pay the most. Getting even a small business loan could be difficult for high-risk borrowers.

Is there a minimum credit value for a business loan?

Technically, there is no minimum credit rating for a small business loan. Every lender has its own requirements.

However, there are some general rules of thumb in the industry. In practice, a personal score of 620 is generally accepted as the minimum. You will most likely need a score of 720 or higher for good business loan terms.

Can I get a business loan with a credit score of 600?

Entrepreneurs often want to know: Can I get a business credit with 600 credit points? Or with another number like a credit score of 500?

The answer is: It will be difficult to get a business loan with a score of 600 or less. <! – ->

What can you do? If your need for money is not urgent, try to improve your creditworthiness so that you can get out of the high-risk category. This is the best long-term option. If you need money right away, check out one of the loans below that don't require a credit check. See also: Loans for small businesses with bad credit .

Business or Personal Score – What's Most Important?

To get a loan for a business, most lenders check both your personal and business credit scores. But good personal credit is the key.

<! – -> Remember, a personal credit score and a business credit score are completely different things. They use different rating systems. The credit bureaus are also different. Some like Experian report both types of ratings. Dun & Bradstreet are only business credit reports. A FICO score is a personal score.

Depending on the type of funding you are applying for, most lenders may want to review both of the results of your loan application.

You may be wondering why the lender needs to check the personal credit scores for a business loan ?

]

This is due to the fact that "the personal finances of owners are still closely linked to the finances of their businesses," according to the Small Business Credit Survey 2020. Professor Scott Shane adds that personal loans are one Business credit concerns because so many small businesses are sole proprietors. Therefore he says: "The business debt does not legally differ from that of the owner." He also notes that more than half (56%) of small business loans nationwide will require a personal guarantee from the owner for the same reason.

Conclusion: Most lenders want to see both your personal credit report and your business credit report. However, personal credit scores remain the key.

What happens if my credit score is low?

If your credit rating is low, your overall small business loan application may be denied. However, denial of credit is only one of the adverse consequences – there are others.

According to a study by Fundera, the benefits of good business credit can be measured in dollars and cents. Bad creditworthiness often leads to the following:

  • Smaller loan amounts. A good credit score can mean that you get approval for up to 20 times more credit than if you had a bad score!
  • Higher interest rates and fees.
  • Shorter repayment period, in turn requires higher payments and depresses cash flow. According to Fundera, entrepreneurs with good credit ratings had an average of 16 years to repay their loans. People with bad credit only got 8 months.

To compare how interest rates and other terms work, run scenarios on the business loan calculator .

Do I need a business credit score at all?

A business credit score is not always required to obtain a small business loan.

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Small business lenders are pragmatic. A commercial bank can see that a startup with very few years of business does not have an established corporate credit history. Sole proprietors may not have an established corporate credit history, as the company is operated primarily on behalf of the owner. In these cases, lenders rely heavily on the owner's personal score.

However, if you have a corporate credit history / rating, increase your options.

Do Lenders Count the Creditworthiness of Partial Owners?

Yes, lenders typically count the personal credit scores of partial owners who own at least 20% of the business. This includes business partners in a partnership or anyone in a company or LLC that has at least 20% equity. Originally a Small Business Administration's standard requirement for SBA loans, the 20% rule has now become part of the traditional underwriting standards. If more than one partial owner has low scores, this could be particularly problematic.

Can I get a business loan without a credit check?

Yes, it is possible to get a business loan without a credit check. However, you are limited to some funding options, such as: B. Invoice financing, factoring, cash advances and certain microcredit. Crowdfunding and personal loans from friends and family are also possible.

Make sure you understand the advantages and disadvantages of options without a credit check:

  • Positive – some types of funding, such as cash advances, can be very quick. You get money within hours or a day or two.
  • Negative – Loans without a credit check can be expensive with high fees. Interest rates and APR are higher than traditional loans. You lose control of cash advances. Example: Payments can be automatically debited from your bank account at unfavorable times, which has financial consequences such as checks.

What are examples of loans that do not require a credit check?

An example of a loan without a credit check is PayPal Working Capital. Small businesses that use a PayPal business account to process annual payments of at least $ 15,000 can apply for working capital loans. Right on his PayPal website states :

No credit check. Your loan is based on your PayPal sales, so no credit check is required and does not affect your credit rating.

Square Capital is another popular example that does not require a credit check. Square Capital is open to companies using the Square payment processing device. It works so that Square knows your history of payments received and can estimate how much you will receive in the future. Your loan amount is based on your volume. The repayment is automatically deducted from future sales, according to the Square website.

A third example of an option without a credit check is stripe capital for companies that use the stripe online payment system.

There are many others. Look for online lenders that provide cash advances without a credit check.

Should I use personal loans for business purposes?

No, not in the long run. Instead of business loans, some small business owners turn to consumer loans such as home loans and personal credit cards. Obtaining consumer credit is often easier if your company lacks an established credit history. However, relying solely on personal sources of credit is not a good long-term strategy. Here's why.

If you rely solely on personal credit cards or consumer credit in business situations, you may be at full capacity at worst. This is because your company and family have to share a single credit limit. Let's look at an example of how this limits you.

  • Suppose you have a personal credit card and a home line with a combined credit limit of $ 50,000. They decide to use all available credit to finance the business expansion. The problem is that you have left nothing for personal purposes. If your truck breaks down, there is no credit for emergency repair bills. Your credit limit is fully tied up in business.
  • However, suppose you also get a $ 60,000 business loan. That would give you a higher overall credit limit overall. You would have a total of $ 110,000 ($ 50,000 personally + $ 60,000 on business).

See How You Can Expand Your Business With More Total Credit Available – Without Limiting The Funds You Might Need For Family Expenses? For this reason, your long-term plan should be to build up business loans .

Will a lender ignore bad credit if I offer personal collateral?

No. Some small business owners wrongly assume that their creditworthiness does not matter if they offer personal security such as a motorcycle or a motor home. It is important to remember that a traditional lender does not want real estate. The lender is active in the lending business. The lender wants you to repay the money.

In my banking days, we saw it as a last resort to recapture assets. This is because there are many costs associated with taking back vehicles or collecting other assets such as equipment. Then the lender has to turn around and find a buyer for the assets. In the meantime, the collateral loses value. Months or years later, the lender can get back just a few cents on the dollar from collateral liquidation – and still have an unpaid shortage.

Therefore, most lenders inquire with the credit bureaus. They want to make sure that the borrowers can pay their debts well. But don't be confused. Yes, a lender can likely request a personal guarantee and business collateral, such as a UCC claim, as a lever for repayment. But the lender only comes to this point after first performing a credit check.

What if you have personal assets but have bad credit? You could:

  • Sell the items. Place an ad on Craigslist, local classifieds, or specialty ads like ATVTrader.com.
  • Pawn the items in a local pawnshop. No credit check is required.
  • Checking financial companies for loans. Warning: Financial companies charge high fees and offer short-term loans in amounts below $ 20,000. There are some decent financial companies, but there are also bad ones. The Federal Trade Commission strongly advises against predatory financing such as car loans.

As you can see from these FAQs, your personal and business credit rating makes a significant difference. Whether for an SBA loan, equipment finance, or other business loan, credit scores are important.

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17 comparison options for small business for comparison

17 comparison options for small business for comparison


According to a federal survey, 44% of small business owners borrowed money to cover their expenses. <! – ->

No surprise, you think. We were closed. We didn't make any money. Of course, small business owners borrowed money to maintain cash flow.

The survey dates from 2019.

<! – -> In other words, there is no shame in getting a business loan. It was not in 2019 and it is not now.

Borrowing money is part of doing business. Business loans can be part of a business plan for growth. According to the same survey, 56% of small business owners who borrowed money did so to expand their business or buy assets.

The US Small Business Survey contains many other informative facts.

Funding Opportunities for a Small Business

There are many financing options for small businesses. Here are the 17 best ways to fund your business:

Traditional bank loan

A traditional bank loan is a general term loan. As a rule, no collateral is required and the payback period is fixed. The interest rate for the term loan is set at the time the business loan is concluded. The monthly repayment amount does not change. A typical term loan is 7 years. Alternatively, the term of the loan can be calculated for a period of time based on 75% of the estimated life of the business equipment. <! – ->

Best for: Entrepreneurs who buy property, plant and equipment with which the company can increase their income.

Short-term loan

A short term loan is usually for a lower amount than a traditional business loan. The payback period for this type of financing is usually 12 to 84 months. The interest rate on short-term loans can be fixed or variable. A number of short-term loans that are settled through timely payments can help a small business owner get credit.

Best for: Start-up companies that need capital while waiting for alternative funding. <! – ->

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Learn more about: Short-Term Loans

Commercial Real Estate Loan

Commercial real estate loans for companies come in two forms: real estate purchases or corporate construction loans. Loans have fixed or variable interest rates and the term is usually 7 to 10 years. The loan amounts start at $ 50,000.

Suitable for: buying real estate, especially condominiums. Lenders lend money up to 80% of the value of condominiums. Also a good financing option for a building loan. Lenders can offer interest-free home loans that allow a company to keep cash flow constant until the loan turns into a temporary loan.

Learn more about: Commercial Real Estate Loans

Credit Line

Credit lines offer the greatest variety of financing options. The interest rate is usually variable, and lenders may need credit collateral assets. As a rule of thumb for lenders, the interest rates on loans without collateral are higher. The lower the loan amount, the higher the interest rates.

Best for: Entrepreneurs who need cash flow to cover short-term expenses like inventory or payroll.

Related reading: Business Credit Line

SBA loan

By managing small businesses, the government guarantees the payment of a substantial portion of the business credit. Lenders who participate in the SBA loan program like this security. The program includes so many credit options that it is offered for one-stop corporate finance.

SBA loans require additional paperwork. You may have heard this as a common complaint. However, the paperwork is straightforward and can be downloaded before meeting with lenders.

Small Business Administration – as you think by name – is about helping small businesses. The additional paperwork required for an SBA loan helps an applicant complete a full loan package.

Best for: A company that wants to borrow a large amount. Since an SBA loan is guaranteed, a company can borrow more money with longer repayment periods.

Online Loans

A faction of the online credit market gives the process a bad name. You may feel negative about ads for businesses that are no more than loan sharks with a website.

Reputable online lenders are great options for corporate finance. There are banks like Wells Fargo, Chase Small Business and Capital One that offer online business credit options.

You cannot argue with the convenience of online lender applications, sometimes referred to as FinTech providers. Examples of FinTech providers are companies such as PayPal Working Capital, Kabbage, OnDeck, Biz2Credit and more.

An online debt consolidation loan can help a company improve its overall credit rating. If a traditional lender is considering small business funding, the lender would rather see a creditor than a number of creditors. Paying out these creditors can also improve business credit ratings.

Best suited for: Borrowers with poor personal creditworthiness or non-established personal creditworthiness who need fast cash flow can benefit from online lenders.

Further information: Online lender

Merchant Cash Advances

This is how a merchant cash advance works. In return for a percentage of your daily credit or debit card receipts, a finance company will transfer cash to you. You set up a merchant account that stores credit and debit card payments. The finance company is paid from the merchant account.

Does it sound like robbing Peter to pay Paul? Well, not if your company has a valid forecast of future earnings tied to credit and debit card sales.

The MCA funding option can have high fees. You can buy MCA companies online. MCA companies do not need a high credit rating.

A company can typically borrow from $ 2,000 to $ 250,000, depending on its previous record of credit and debit card sales. A business owner with a credit score of 500 or better can usually qualify for cash advances from merchants.

Best Suited For: A small business with poor or poor credit rating that needs fast cash flow.

More information: Merchant Cash Advance

Customer financing

Typically, a company cannot consider unpaid bills as an asset. Lenders want to see money in the bank.

Lenders that provide debtor financing consider funds that are outstanding as billed goods and services. This money is considered an asset. And even though these funds have not been paid out, there is a payment schedule (due dates).

Lenders who support debtor financing for a company use software called invoice factoring. The software synchronizes the bills between the company and the lender for debtor financing. If the deal is paid through the software, the lender is paid.

Suitable for: A small business that is seasonal (or has defined short-term income periods) and in the meantime needs working capital.

Related reading: Order financing and Customer factor

USDA loan

Farmers and ranchers who need capital can borrow up to $ 10 million from the USDA. Interest rates are typically between 5 and 9%.

This type of corporate finance has a specific source, the USDA Business and Industry Loans Guarantee Program. The applicant must live in a rural area defined as an area with fewer than 50,000 inhabitants.

The applicant must have good credit and at least 10% equity in the farm or ranch. For startups, the requirement is 20% equity.

One of the best things about a USDA loan is that the applicant receives mentoring and advice from the program. In addition to the discussions about a loan, the advisors can help the applicant develop a business plan.

Suitable for: Farmers and ranchers who need capital for renovation, modernization, property purchase, or inventory / inventory.

Note: Enterprises related to agriculture and agriculture should consider the SBA Limited Economic Injury Disaster Loan program. In early May 2020, this program was changed from general to specific. The program started as a program for all small businesses, but is now only for agricultural and agricultural businesses. A company can earn up to $ 2 million at an interest rate of $ 3.75.

More information: USDA loan

Equipment financing

An equipment finance loan can be structured as a temporary loan, line of credit, or a combination of the two types of loan. The flexible credit structures create repayment plans that are more flexible than with conventional loans.

Little or no down payment is required. The lender can allow the applicant to include installation costs and sales tax in the total loan amount. This helps a company keep working capital while expanding.

Best suited for: A company that needs a vehicle fleet, e.g. B. delivery van. This type of small business loan can also be used to purchase packaging machines and / or refrigeration units.

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Further information: Equipment financing

Business Credit Cards

A credit card for business purposes is a must. The business credit card report can make it easier to track expenses and gather information needed to file taxes.

But a business credit card can do more. It is much easier to qualify for a business credit card than for a loan. Since interest rates are high, using a business card for a loan should only be used for short-term financing.

Timely business credit card payments can help a company build a credit history. You can also earn reward money.

Best for: A company that needs to manage cash flow. Credit card payment can be set up to match the company's billing cycle.

More information: Business Credit Cards

Microcredit

SBA microcredit is for entrepreneurs who are minorities, women, veterans and / or low-income individuals. The SBA makes loans available and grants them directly to eligible nonprofit microcredit providers who grant the loans to business owners.

These loans are often used by start-ups. The money can be used for training and technical assistance.

Best for: A company that meets the applicant's basic skills and requires $ 50,000 or less.

Further information: Microcredit

Crowdfunding

In the simplest sense, crowdfunding is a way to get small amounts of money from a large number of people. Crowdfunding is done over the Internet.

There are four basic types of crowdfunding:

Equity – owner sells part of the business to one or more investors

Donation – As it sounds, people are giving money for the business.

Debt – The owner receives money from individuals and owes them the money.

Rewards – For a set amount of donation, the donor will receive products, services, or gifts.

Best suited for: business start-ups, entrepreneurs.

Further information: What is crowdfunding? and List of crowdfunding sites

Peer-to-peer lending

Peer-to-peer loans are similar to equity crowdfunding because a private investor is used. With peer-to-peer, however, the owner does not sell part of the business. Instead, the owner receives a loan from a colleague.

The peer lender receives a return on the investment. Since the peer lender takes all risk, the lender wants to get a good return on the investment. Interest rates are often high.

How does it work? There are websites like Upstart and Prosper that enable peer-to-peer loans. Business people join the website either as borrowers or as lenders.

The peer-to-peer credit websites have software for calculating the borrower's creditworthiness.

Best for: a business owner who buys credit over the Internet and compares prices.

Relatives: Peer-to-Peer Loans

Commercial Loan

With Trade Credit, the business that sells goods or services grants the buyer a loan. The commercial credit agreement signed by the parties allows buyers to pay at a later agreed date.

Since the buyer does not pay at the time of the sale, a commercial loan helps to keep the business cashless.

The commercial loan is most often used by a company that is active in international trade. A U.S. company may receive a standby letter of credit or a commercial / import letter of credit from the U.S. bank. The bank that issues the letter supports the business. The letter improves the company's credit rating overseas.

Best for: A company that is involved in international trade.

Relatives: Handelskredit

Equity investment

Think Shark Tank. Equity investment takes the form of angel investors, venture capitalists or private equity. Despite the popularity of the Shark Tank Show, this type of investor is a rarity. Angel investors make up the smallest percentage of this limited method of granting business credit.

In return for the private investment, you sell an interest in your company to an investor or group of investors who want to make a profit. To stand out from other companies, an owner must have extensive knowledge of all business numbers and an excellent business plan.

Best for: A young company with great growth potential looking for venture capital.

Relatives: Size of angel investments

Start-up financing

Some of the aforementioned lenders offer finance to startups. To cover all the basics, we'll add Community Development Finance Institutions.

CDFIs are non-profit lenders. You don't need as much collateral as a traditional loan.

A CDFI has an enormous advantage for some applicants. Of course, like all lenders, the CDFI will want your credit score. But here's the advantage: The CDFI may be listening to your reasons for bad credit. You could still get the loan.

Best for: a business owner with bad credit who can be explained by personal or family issues such as illness or accident.

Related topics: Loans for business start-ups

Frequently Asked Questions About Small Business Financing

Let's look back.

Which financing factors do lenders consider?

Lenders involved in small business financing have similar requirements to lenders who lend you money to buy a house or car.

Lenders take many factors into account when making a financing decision. However, these are the most important factors:

  • Credit Score – Most lenders want to see a credit score of 650 or higher. You want these results from others who have at least 20% stake in the company.
  • Business Plan – In addition to the personal financial records of the owner or owners, the lender needs your business plan. An important point to keep in mind is how to get the loan that fits your business plan.
  • Business Revenue – In most cases, you will provide at least 2 years of business revenue records, including income tax records.
  • Clean History – You may not have any tax liens or late tax payments that are personal or related to your company.

What is the best financing option for my company?

Your best funding option depends on how much money you need, what type of repayment terms you are looking for, and how quickly you need the money.

Your best option is the one that meets your current needs and is available. Here are 7 factors that small business owners should consider when deciding which financing option is best:

  • How Quickly You Need Money – Obtaining a line of credit is usually faster than a term loan. Loaning a website loan can only take 36 hours.
  • Programs your existing bank offerings – Many small businesses first turn to their existing bank. First, see what your bank can do for you. If your bank is an SBA lender, consider these options.
  • A recommendation from a trusted source – A recommendation from a colleague or mentor can alert you to some form of funding or lender.
  • Are collateral required? – Some companies, such as knowledge companies and online companies, do not have many tangible assets that can serve as security. There are loans that a company can get without security, e.g. B. Different types of temporary loans.
  • Flexibility of Conditions – Interest rates can be fixed or variable. The amortization conditions can vary .
  • Probability of Funding – With poor credit rating, it is not a good time investment to pursue traditional funding options. Find your best fit. With bad credit, look at online funding or dealer advances.
  • Cost and Interest Rate – You may find a lower interest rate, but the loan may require different fees. Depending on the payback period, these additional fees can nullify your interest savings.

Source: The Federal Reserve Banks Small Business Credit Survey page 17.

How can I finance a company without money?

It can be difficult to get a loan to start a business if you have no money. But no money and no determination can get you where you want to go. Without money there is no other way but up.

You have several options for financing a company without money. Entrepreneurs may find it difficult to get a loan to start a business – a traditional business loan. Start-up entrepreneurs who have no money use these alternative sources of funding:

  • Friends and Family – Your inner circle of friends and family may be willing to support your company .
  • Personal Credit Cards – Not ideal, but entrepreneurs are constantly starting business with credit cards.
  • Home Loan – Again, this is not ideal as it can endanger your family, but people often start a business this way. It can also help build a good credit history.

How do I get a Small Business Grant?

To get a small business scholarship, you need to know where to look and don't waste time in the wrong places.

There are two programs at federal level: Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR). However, they are only of limited use. Certain local communities have programs along with various private sources. Read more: Sources of supply for small businesses .

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Minorities rely more on personal credit scores than on business scores

Minorities rely more on personal credit scores than on business scores


When looking for financing, owners of minority companies are at a disadvantage compared to non-minorities. Part of it has to do with credit scores: <! – ->

  • Minorities rely more on their personal credit scores than on business credit scores. This is important to know because the personal values ​​for blacks and Hispanics are often lower than for other owners.
  • Minorities tend to make more negative funding decisions. For example, they may not receive all of the funding that they have requested.
  • Finally, minorities tend to pursue more expensive financing such as cash advances.

Background

The information comes from a study on minority-owned companies published in 2020 by the Federal Reserve Bank of Atlanta.

According to the study, more than half of black and Hispanic owners (52% and 51%, respectively) rely only on their personal credit scores to find funding. In comparison, white-owned companies tend to rely on lending with only 45% relying on personal ratings.

<! – -> As a background, it is important to understand how corporate finance works. Large companies generally only receive their financing on the basis of the company's creditworthiness. Small businesses, on the other hand, can be seen as closely identified with the owner. Therefore, lenders often look at both business and personal credit history and require the owner to personally guarantee the business credit. For example, if the owner applies for a home loan and uses the money for the business, the decision will be based solely on the owner’s personal information.

Why exactly do minority small business owners rely solely on personal credit scores instead of their business credit?

One reason may be that you have no choice. The company may lack a well-established credit history. For example, sole proprietorships and startups may simply not have a credit history on behalf of the company. The businesses are too new or inseparable from the owner.

Owners can also be forced to rely primarily on personal loans because their business earnings, profits, or cash flow are low.

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Personal Credit Scores of Minority Owners

Credit bureaus interpret scores differently. But according to Experian a good personal score is 700 or higher. A poor credit score is generally below 670. That is on a scale from 300 to 850. <! – ->

  • Black business owners report personal credit scores that are in the "bad" range below 670.
  • White and Asian business owners, on the other hand, have loans two to three times more often in the “very good” range above 760.

The following table shows the personal credit scores of the study participants. You can see the big differences.

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The study also found that Hispanics and blacks were more likely to have less attractive funding options at higher costs. For example, Spanish companies were more likely to search for cash advances from merchants than white companies (15% vs. 8%). Black applicants applied for factoring more often than white-owned companies (7% vs. 3%). Cash advances and factoring tend to have higher fees and interest rates.

A low credit rating can mean that the owner receives less money than necessary. 44% of minorities mentioned reasons for less funding as low personal creditworthiness. This is compared to only 32% of white companies. (Report on companies owned by minorities, p. 11)

3 steps to better credit for minority companies

What steps can minority company owners take to ensure they get the funding they need for their business? Three things stand out:

  1. Try to improve your personal credit rating. You may need a business loan but your personal score is still important.
  2. Improve your corporate credit history so that you can also rely on the creditworthiness of your company. The more you create your own company history, the more financing options you have.
  3. Act Now Before You Need Money. It takes time to improve creditworthiness. You don't want to be forced into unattractive financing at the last minute because you're desperate.



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Tips To Protect Your Business From Credit Fraud

Tips To Protect Your Business From Credit Fraud


A recent webinar sponsored by Socure looked at the lessons learned from an increase in fraud in digital lending. The event looked at the lessons learned from digital lending from the first wave of PPP loans . <! – ->

Participants included Marc Billanti Sr. Director Sales, Q2 Cloud Lending; Richard Cooney, Fraud Director, Axcess Financial; and Evan Rabinowitz, Head of Business Development, Socure. The event was moderated by Rivka Gewirtz Little SVP for Marketing and Strategy, Socure.

Fraud prevention for corporate loans

Small Business Trends was there to find business fraud prevention tips to help protect your business.

Protect your company

<! – -> Gewirtz Little started the webinar on the paycheck protection program ( PPP ).

"This should help small businesses do their payroll," she said. "The long-term goal of Small Business Administration was to give these loans something so that they looked more like grants."

Unfortunately, they attract fraudsters with the companies they are supposed to help. How to protect your small business:

Protect your identity

Richard Cooney, Fraud Director | Axcess Financial was aware of a big priority – identity theft.

"Identity is the key," he said. "You see people using real information and synthetic information." <! – ->

Tip: Monitoring your business credit is an important way to protect your identity and prevent credit fraud. Here is a credible way to do that .

Prepare documents properly

Marc Billanti, Senior Director Sales | Q2 Cloud Lending said that digital credit companies like banks see more than ratings.

<! – -> He explains.

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"Have all your records in good condition when you apply," he says. Billanti also says that it is better to stay with your current bank than to look for a new one. This applies to the PPP and other digital money.

In short, if you have all the documents in order, the process will go ahead. This reduces the likelihood that someone will intercept information.

Tip: Never share bank details on social media.

Protection of business computers

Hackers are great at getting into business computers. For this reason, you need an excellent firewall and first-class antivirus software. Employees should change passwords on business computers every 90 days.

Tip: Back up files frequently and save them outside of your location.

Watch File Size

Evan Rabinowitz, Head of Business Development | Socure says you should make sure that your information is in an easily readable digital format. He suggests PDF. And whether you apply for the PPP or another online loan, size matters.

"Make sure it's not a 50MB file that servers could reject," he says.

Tip: Consider protecting these PDF documents with a password.

Use secure domains

Your website is your calling card. According to Billanti, banks that want to avoid fraudsters in the online world have to rely on various types of information. In many cases, they are digital and not face to face.

Tip: HTTPS is better for domains than HTTP. The web browser uses these to check and verify security certificates. This is another level of credibility in the online world.

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