SBA Loans For Real Estate: Your Best Options

The SBA has several options for small business owners in need of a business loan for real estate. Of the six types of SBA loans, 7(a) Loans and 504 Loans are the two most viable options for real estate purchases. Other SBA loans (CAPLines, Export, Microloans, and Disaster) either prohibit borrowers directly from using funds for real estate or are not set up in a way to support such purchases.

Types Of SBA Loans For Real Estate: SBA 504 vs 7(a)

If you need an SBA loan to buy property, a 504 or 7(a) Loan is your best bet. While both can be used for real estate, the two do have differences that make some better for small business owners than others.

The main differences are in where the funding originates, the loan structure, and the SBA loan down payment. 504 loans are supported by both the SBA and CDCs (certified development companies) and have strict loan structures in which the borrower is only required to make a down payment of 10%.

A 7(a) loan is backed only by the SBA. The structure of the loan can vary dramatically depending on the risk involved with financing– 10% is the minimum down payment required.

504 loans offer fixed-rate financing, while 7(a) loan products offer lower but variable fees adjusted quarterly.

SBA CDC/504 Loans

The SBA 504 loan is a program backed by the SBA and Certified Development Companies. These selective loans are open to for-profit small businesses operated by United States citizens and resident aliens. They offer fixed interest rates, long-term financing, and smaller down payments.

The purpose of 504 Loans is to promote job creation through supporting small businesses. Recipients are connected with a CDC, a non-profit organization that is certified and regulated by the SBA. The CDC will then provide financing in partnership with the SBA.

Loan Usage

These loans can be used for fixed assets, like real estate, and a few soft costs.

There are strict policies on how the funds may be used– borrowers cannot use financing for working capital, inventory, or consolidation or repayment of debt.

Because of the focus on fixed assets, 504 Loans are often referred to as SBA Real Estate Loans or SBA Commercial Real Estate Loans. A 504 loan can be used for purchasing an existing building, land or land improvements, constructing or renovating facilities, purchasing equipment for long-term use, or refinancing debt connected to renovation or equipment. This policy makes a 504 Loan a great option for a real estate loan.

Rates & Terms

SBA real estate loan rates do vary depending on loan and lender. 504 loans are known for long-term fixed rates and fees, set by the current market rate for 5- or 10-year Treasury issues. Fees may include:

  • Interest rates
  • CDC servicing fees
  • Central servicing agent fees
  • SBA guarantee fees
  • Bank fees
  • Third-party fees
  • Prepayment fees

While no limit exists on project size for 504 loans, there is a maximum SBA loan amount of $5 million. This number may rise to $5.5 million if the recipient intends to use the money to finance an energy-related project.

How To Apply

If you intend to apply for a 504 loan, the SBA asks you to provide proof of:

  • Eligibility
  • Indebtedness
  • Creditworthiness

The 504 loan application guides potential recipients through the process of providing such material. It is a lengthy application — thirteen pages, to be exact. You can expect to provide information on your small business’s project costs, energy efficiency goals, debenture pricing, and more. The application can be completed and submitted to your area’s CDC, which will then partner with the SBA Loan Processing Center to determine eligibility. You can get connected with your regional CDC through the SBA’s online resource for small business owners.

SBA 7(a) Loans

7(a) loans are the most popular financing option for small business owners. They are backed by the SBA in amounts up to 85%, providing opportunities for businesses that may be ineligible for traditional loans. There are several types of 7(a) loans that provide versatility, long terms, favorable rates, and flexibility for small businesses.

Loan Usage

7(a) loans can be used for a wide variety of needs: working capital, building, renovating, business startups, construction, real estate, equipment, and more, depending on your lender and loan agreement. This versatility, of course, also includes fixed assets such as real estate purchases. 7(a) loans are flexible and can be negotiated depending on a particular business’s needs; this makes them a viable option for many small businesses purchasing real estate.

Rates & Terms

Rates and terms for 7(a) loans can vary depending on the specific loan agreement, lender, borrower, etc. The SBA Loan Calculator is a great way to better understand your specific loan’s rates and fees. We track the current SBA loan rates at merchant Maverick.

How to Apply

To apply for a 7(a) loan, you will need to fill out an online form that describes your business and its needs. The SBA uses this information to match you with a lender with whom you can negotiate a loan.

The documents you need will vary depending on which loan you apply for. Typical items you will need are:

  • Borrower Information Form
  • Statement of Personal History
  • Personal Financial Statement, Including Credit Score
  • Business Financial Statements
    • Profit and Loss Statement
    • Projected Financial Statements
  • Ownership and Affiliations
  • Business Certificate/License
  • Loan Application History
  • Income Tax Returns
  • Résumé
  • Business Overview and History
  • Business Lease

Do SBA Real Estate Loans Require A Down Payment?

While down payments do vary in size, there is usually a minimum 10% down payment required from SBA real estate loan recipients. You will also need collateral, which depending on your specific loan, can usually be any property or equity owned by the business. Some lenders will allow borrowers to use personal items, such as a personal home or vehicle, as collateral. Depending on the lender, an SBA loan of any kind may also require a personal guarantee from the borrower.

Final Thoughts

For real estate financing, SBA 7(a) Loans and SBA 504 Loans are the most viable options for small business owners. Both 7(a) and 504 loans offer reasonable rates and flexibility for business owners, so the best loan for your individual business will rely heavily on the specifics of your needs for real estate.

The post SBA Loans For Real Estate: Your Best Options appeared first on Merchant Maverick.

“”

SBA Community Advantage Loans: A Complete Guide

Every small business has one thing in common: they all need cash to operate. Money is required to start a new project, expand a business, or purchase the equipment required for daily operations, and sometimes that money has to come through financing. As many business owners know, though, this isn’t as easy as simply walking into a bank and receiving a loan, especially in underserved areas.

Sadly, whether we’re talking about an inner-city business or one that is owned by a woman or minority, funding can be hard to get. But funding for these demographics is critical, not just for the success and survival of the individual business, but to improve the economy throughout underserved markets. This is why the Small Business Administration has launched the SBA Community Advantage Loan Program. Read on to find out more about this innovative pilot program.

What Is The SBA Community Advantage Loan Program?

The Small Business Administration offers loads of resources for small business owners, including training, educational materials, and even funding. Any small business owner that has ever attempted to take out a loan knows just how difficult it can be to obtain traditional funding. This holds especially true for those in underserved communities.

What Is An Underserved Community?

Underserved communities typically include inner cities and rural areas. Federally designated Low-to-Moderate Income communities are considered underserved. Any business that has more than 50% of full-time staff members that are low-income or live in LMI areas is considered an underserved market. Businesses that are owned by minorities, women, and veterans are also included in this definition.

The SBA assists small business owners in becoming empowered and successful, and businesses in underserved markets are no exception. After all, a successful business doesn’t just benefit the owner – it also helps stimulate the economy and create jobs, which is especially critical in these low-income areas.

This is why the SBA has launched the SBA Community Advantage Loan Program. This financing program allows businesses in underserved areas to receive low-interest financing with reasonable terms. Business owners that can’t receive financing through traditional loan programs can take advantage of competitive rates and terms through this SBA pilot program.

Because this is an SBA pilot, there is a limited amount of time during which businesses can apply for and receive a Community Advantage loan. This small-scale project from the SBA will expire on March 31, 2020, after which businesses will have to consider one of the Administration’s other loan programs, such as the 7(a) program.

Community Advantage VS Standard 7(a) Loans

When exploring the options for SBA business loans, the Standard 7(a) program is typically the most popular. Why, then, would a business consider applying for a Community Advantage loan? Looking at the differences between the two programs can help determine which is the best choice for any business.

First, it’s important to understand how SBA loan programs work. The Small Business Administration does not provide funding directly to small businesses. Instead, the SBA has created a framework and standards that enable banks, credit unions, and nonprofits to act as intermediaries and provide low-interest loans with flexible terms for business owners. Because these loans are backed by the SBA, there is less risk for the lender, so it can feel confident in loaning money to startups and established small businesses.

The SBA Community Advantage program was launched in 2011 and will be available through 2020. This program provides loans of up to $250,000 to qualifying small businesses. Because 85% of loan funds up to $150,000 and 75% of funds more than $150,000 are guaranteed by the SBA, lenders are more willing to work with businesses that have failed to obtain traditional financing. Loans can be used for almost anything, including the purchase of equipment or real estate, to refinance existing debt, or for use as working capital.

The maximum interest rate for these loans is set by the SBA as the prime market rate plus 6%. Rates are typically around 7% to 9%, which varies by lender. The background of the borrower, including credit score, could affect the interest rate, but it will never go above the SBA’s set maximum. Terms for these loans are dependent on how the money is used. Equipment purchases and working capital come with a maximum maturity of 10 years, while real estate purchases have a maximum term of 25 years.

The Standard 7(a) program has a few differences when compared to the Community Advantage program. For starters, the maximum loan amount for 7(a) loans is much higher. Borrowers can receive up to $5 million through this program, which makes it the better choice for anyone seeking more than $250,000. If you need a smaller loan and don’t qualify for the SBA Community Advantage program, you may want to consider SBA Microloans.

Interest rates for loans obtained through the 7(a) program vary and depend upon the amount borrowed. Rates are currently set at the prime rate plus a maximum of 4.75%. Average interest rates range from about 7% to 9% and are comparable to the rates of the Community Advantage program.

The repayment terms are also similar between the two programs. Loans used for working capital and equipment have maximum terms of 10 years, while real estate purchases have terms up to 25 years.

One of the biggest advantages of the Community Advantage program is that businesses without adequate collateral can be approved since the SBA backs between 75% to 85% of the loan. Collateral requirements will vary by lender.

Under the terms of 7(a) loans, lenders do not have to take collateral for loans that do not exceed $25,000. Lenders may opt to demand collateral for loans up to $350,000. Once the loan exceeds this amount, the SBA requires that the lender collateralize the loan up to the total loan amount. If business assets are not enough collateral, trading assets and personal real estate will be used. It’s also important to note that a personal guarantee is required to receive both 7(a) and Community Advantage loans.

Aside from the maximum loan amount, one key difference between the two programs is which businesses are eligible. Any for-profit business or startup that meets the general requirements set by the SBA can apply for a 7(a) loan. Only businesses that have met the qualifications of operating in an underserved area can apply for and receive Community Advantage funding.

If an SBA Community Advantage loan is the right choice for you, read on. If the 7(a) program sounds more in tune with your needs, read more about SBA 7(a) terms, rates, and eligibility.

Who Is Eligible For A Community Advantage Loan?

All applicants for an SBA Community Advantage Loan must meet the standard eligibility requirements set forth by the SBA.

Business owners applying for a Community Advantage loan must own a for-profit small business as defined by the SBA. This means that businesses should have fewer than 500 employees and under $15 million in annual revenue. Businesses must be based in the United States and must also be in the area that is served by their chosen lender. Businesses that participate in illegal operations, lending, or investment services are not eligible.

All applicants must have a purpose for obtaining the loan, be able to prove that they can repay the loan, and be able to demonstrate a need for the funding. In addition, applicants must have exhausted other financing options before applying for a loan through the SBA.

A good credit score is required for all SBA loans, including the Community Advantage program. A minimum score of 680 is recommended for the highest chance of approval. Any negative marks on a credit report will need to be explained to the lender. Unsure of your score? There’s no need to be – find out how you can obtain your free credit score before talking to a lender.

Finally, the SBA has requirements specific to the Community Advantage program. In order to qualify for a loan, the applicant must operate the business in an underserved market. By the SBA’s definition, this includes Low-to-Moderate Income communities, businesses where over half of the full-time staff is low-income, Empowerment Zones, Enterprise Communities, Promise Zones, and HUBZones.

In addition to the underserved communities previously listed, startups that have been in business for fewer than two years are also eligible to apply. Servicemembers and military veterans who qualify for the SBA Veterans Advantage program and meet all other requirements can also apply for a Community Advantage loan.

If you’re still unsure if the SBA Community Advantage program is right for your business, take a look at the requirements for other types of SBA loans that may better serve your needs.

How Do I Apply For An SBA Community Advantage Loan?

small business

If you need a loan of $250,000 or less and you operate your business in an underserved area, the SBA Community Advantage program may be the right choice for your financing needs. After you’ve determined that you’re qualified for the program, the next step is to begin the application process.

To begin, you will need to find a lender that offers SBA Community Advantage loans. You can use the SBA website to find a local lender in your area or you can ask your existing financial institution for a list of SBA Community Advantage lenders. Once you’ve found a lender, you’ll need to work with them online, over the phone, or in person to complete the application process.

Your lender will guide you through the process and will provide the details specific to your loan, such as interest rates, terms, and collateral requirements. The lender will also require personal information from you relating to your credit, finances, and business history. You can get started ahead of time by gathering a few critical documents.

To apply for your loan, you will need to provide financial statements, personal and business tax returns, and personal and business credit reports. You should plan to have all documents for at least the last two years.

For startup ventures that have been in operation for fewer than two years, a solid business plan and financial projections will be required to process your application. Please note that other documentation may be required for both established and startup businesses.

Once the application is completed, approval and funding typically take several months because of the lengthy underwriting and closing processes. The entire process from application to funding takes an average of 30 to 90 days (and sometimes longer). If you need approval in a hurry, consider the advantages of an SBA Express Loan.

After the application is approved and the underwriting and closing process is complete, funds will be distributed and you can use them to purchase, update, or expand your small business.

Final Thoughts

It’s no secret that SBA loans can be tedious to apply for and difficult to obtain, but the benefits of these small business loans outweigh the drawbacks. If you operate in an underserved community and need low-interest financing to improve your business, the SBA Community Advantage Program is certainly an option worth considering.

The post SBA Community Advantage Loans: A Complete Guide appeared first on Merchant Maverick.

“”

Credit Cards Balance Transfers: A Guide for Small Business Owners

Picture this: you get a credit card for business expenses that comes with a high APR. Maybe it’s because you didn’t know any better, needed quick credit for an emergency, or simply didn’t have the credit score to qualify for better offers. No matter what the reason, you’re not alone. Even the savviest consumers and business owners can fall victim to high-interest credit cards.

Once you’ve used the card, you’re stuck with this high interest rate until you pay off the debt, right? Actually, you have an alternative that can lower your interest rates, potentially saving hundreds or even thousands in interest. That alternative? Transfer your balance to a credit card with a lower APR.

If saving money on interest is something that, well, interests you, read on to learn everything you need to know about balance transfer credit cards.

What Is Balance Transfer?

To put it simply, a balance transfer occurs when existing debt is transferred from one credit card to another. The transfer won’t eliminate the debt. While the first credit card will be paid off, the balance will simply be applied to the new card.

Is A Business Credit Card Balance Transfer Like A Normal Balance Transfer?

The primary difference between personal and business credit card transfers is how they are reported. Monthly payments, late payments, and defaults from normal credit cards affect your personal credit score, while business credit card payment history is typically reported to business agencies.

What Is A Balance Transfer Fee?

A balance transfer fee is a one-time fee charged by the issuer of a credit card for completing the transfer. This fee varies by company but typically runs 3% to 5% of the total transferred balance. When compared to long-term savings on interest, these fees are quite minimal for many business owners.

What To Watch Out For

You’ve transferred your balance to another card, and it’s all smooth sailing from there, right?

Not exactly. It’s important to note that balance transfers come with expiration dates. This period of time varies by issuer, but you can typically expect the introductory APR to expire between 6 and 18 months after making the transfer. Once the low interest rate disappears, the balance will be subject to the standard APR which could be 15%, 18%, or even higher.

Making a late payment could also result in losing the introductory APR; all balances would then become subject to the company’s standard APR.

Be aware that new purchases charged to the credit card will most likely not be covered by the introductory APR offer. Instead, new purchases are typically subject to the standard APR. Make sure you fully understand the terms, conditions, and rates surrounding new purchases before making your move.

How Long Do Balance Transfers Take?

Best Time Tracking Integrations

Once you’ve picked a balance transfer card that’s right for you, the process of completing the transfer is quite simple. All you need to initiate the transfer is information such as account numbers and the balance amount. Once all of the information has been submitted, you can expect the transaction to be completed in about two weeks.

Different Types Of Balance Transfer Offers

There are a few different types of balance transfers available. Make sure to shop around to find the card that offers the most savings while also providing a competitive interest rate after the promotional period has expired.

One of the first types of balance transfers is the no-fee offer. These balance transfer cards do not require you to pay the typical 3% to 5% transfer fee, which could add up to big savings on larger balances.

Another popular type of balance transfer is the 0% APR offer. These balance transfers offer a 0% introductory rate, making it easier to pay down or pay off debt. As previously mentioned, these offers do expire, so it’s important to be aware of standard APR rates and try to pay down as much of the debt as possible during the introductory period.

The Benefits Of Business Credit Card Balance Transfers

There are several benefits to taking advantage of a business credit card balance transfer. For starters, the money saved on interest allows business owners to pay down their debts much faster, which not only provides more unused credit but can also boost the credit rating of the business.

A business credit card balance transfer is also an easy way to consolidate debt and lower credit utilization. For example, if a balance of $4,000 on a card with a $5,000 limit is transferred to a new card with a $20,000 limit, credit card utilization on the new card is not as high, and additional purchases up to the higher limit can be made, keeping all expenditures on one card.

In some cases, additional debt balances can be transferred to a business credit card. High-interest loans and installment payments can sometimes be transferred, depending on the card issuer’s terms. This could save in interest and help reduce debt over a shorter period of time.

If business purchases have been made on a personal credit card, transferring the balance to a business card will also help boost your business credit, which is critical for obtaining business loans, equipment financing, and other business-related financial products.

Balance Transfer Drawbacks

Balance transfer cards aren’t without their drawbacks. A big mistake that many business owners and consumers make when signing up for these cards is not looking beyond the introductory APR. Sure, it sounds great in theory, but reading the fine print can reveal caveats such as a higher interest rate than what is currently paid. All terms and conditions should be fully understood before making the transfer.

It’s also easy to believe that once the introductory rate expires, the remaining balance can be transferred to another card. In reality, this can harm your credit score. Bouncing from card to card and keeping a high balance makes you a riskier venture, which could harm your chances at receiving additional financing when needed and can potentially lead to reduced credit limits on existing cards. Remember, a balance transfer card is meant to pay off debt more quickly and should be used responsibly.

I Want To Do A Balance Transfer – Where Do I Begin?

  1. Understand your current financial situation. What is your current balance, credit limit, and APR? Knowing this information will help you make an informed decision on whether making the transfer is the smartest financial move.
  2. Explore your options. If you’ve received a preapproved offer (or several), consider these first. Weigh the new terms and conditions with the terms and conditions of your old card or loan to see which are better. Remember to think over the long term and look beyond the introductory APR. Also, note that you typically cannot transfer balances between two cards from the same bank or provider.
  3. Choose a card. Apply for your chosen card once you’ve determined which best fits your needs.
  4. Wait for approval. Once approved, you can either use the credit card company’s online system or call customer service to provide details on the balance transfer. Remember, you will need balance amounts and account numbers to complete the transfer.
  5. Pay off the debt. Once the transfer is complete after 1 to 2 weeks, work to pay off your debt as quickly as possible. Don’t forget that the introductory APR expires, so your goal is to pay off as much as possible before this period ends.

Frequently Asked Questions

Is it better to pay off one credit card or reduce the balances on two?

The most effective way to tackle credit card debt is to focus on paying down the balance of the card with the highest interest rate. Chipping away at this debt will cut down on the interest you’re paying and help you pay off the card faster. After one card is paid off, continue this method to pay off all of your cards. Remember, even though you’re keeping the focus on one card, you always want to make sure you’re making at least the minimum payment on all credit accounts.

How do balance transfers affect your credit score?

Applying for a credit card does show up as an inquiry on your credit report, which can lower your score. It’s important to pick just one card with the best terms to avoid multiple dings on your credit. Transfers can be great for your credit score over the long term. In addition to potentially lowering your credit utilization, a lower interest rate allows you to pay off your debt quickly, which can boost your score.

Does a balance transfer automatically close the account I’m transferring from?

A balance transfer does not automatically close your old credit account. If you wish to close your account, contact the creditor once the balance has been transferred.

Can I transfer a personal credit card balance to a business credit card?

In some cases, yes, but it depends upon the terms of the company. It’s important to note that keeping business and personal expenses separate is often recommended, so this should be a consideration before a transfer is initiated. It is also important to remember that business cards typically require a personal guarantee, so you will still be held liable for the transferred debt.

Can I transfer a business credit card balance to a personal credit card?

Again, in some cases, you can do this, provided that both accounts are in your name. However, as previously mentioned, it’s typically recommended to keep business and personal finances separate for bookkeeping purposes.

The post Credit Cards Balance Transfers: A Guide for Small Business Owners appeared first on Merchant Maverick.

“”

The Complete Guide To Credit Bureaus: Equifax VS Experian VS TransUnion

The Complete Guide To Credit Bureaus: Equifax VS Experian VS TransUnion

If you’ve ever applied for a loan — whether it be for a car, a house, or even a small business — then I’m sure you’re well acquainted with the importance of credit scores. But what about credit reports?

Credit reports tell lenders about your credit history and indicate how reliable you are as a borrower. But more than that, credit reports help you understand your credit, improve your credit score, and prevent fraud and identity theft. So how do you get your credit report? That’s where credit bureaus like Equifax, Experian, and TransUnion come in.

In this post, we’ll cover everything you need to know about credit bureaus. Then we’ll break down the “big three” credit bureaus so you can confidently understand your credit report and score.

What Is A Credit Bureau?

Let’s start with the basics.

A credit bureau is a business organization that collects and sells data regarding the credit history of individuals. They typically collect data such as your credit card and loan balances, the number of credit accounts you have, your payment history, any bankruptcies, etc. Today, there are dozens of credit bureaus, but the “big three” are Equifax, Experian, and TransUnion.

Credit bureaus arose to help lenders quickly gauge the reliability of a potential borrower. In the past, you could go to the good ol’ general store and the owner would know you, your character, and whether or not putting your items on “charge” (or on credit) was a good idea. That method may have worked in the past, when communities were small and isolated, but there had to be a better way moving forward. Thus credit bureaus were born.

Credit bureaus collect data on potential borrowers and sell it to banks to help them make informed lending decisions. The oldest of the “big three,” Equifax, started capitalizing on this need all the way back in 1899.

Today, the credit bureaus have streamlined and computerized the whole process by compiling the data they collect into a credit report and credit score. While every credit bureau calculates credit scores differently, and every lender has different credit score requirements, credit reports and credits scores allow for a more universal measuring stick to judge potential borrowers by. Recently, credit bureaus also have branched out to providing dozens of additional products to help individuals and businesses alike, including identity protection, business marketing, and more.

How Do Credit Bureaus Collect My Information?

Okay, we admit it all sounds a bit creepy. Big Brother’s always watching, right? Well, yes, but it might comfort you to know how credit bureaus collect and share your information.

Credit bureaus mainly collect information from credit institutions with which you already have a relationship, such as:

  • Banks
  • Credit card companies
  • Student loan providers
  • Auto loan providers

Credit bureaus do not have access to these accounts; instead, the credit institutions share the information with the credit bureaus. Credit institutions are not obligated to share information and can give data to one, two, three, or none of the major credit bureaus. Typically, credit bureaus store data on your balances, available credit, payment history, and the number of open and closed accounts you have. Collection agencies and debt collectors may also report to the credit bureaus if you have any delinquent activity.

The rest of the information credit bureaus collect comes from public court records. They access these records in search of any possible bankruptcies, tax liens, repossessions, and foreclosures.

How Do Credit Bureaus Use My Information?

Now that you know how credit bureaus collect your information, you’re probably wondering how they use your information?

Credit bureaus use your information to create credit reports and credit scores. They then share your information with potential lenders, landlords, and employers for a number of reasons. Your credit report may be pulled up in the following scenarios:

  • When a lender is checking your credit to see if you qualify for a loan
  • When a landlord is deciding whether or not to accept your rental application
  • When a new employer needs to run a background check
  • When a utility provider is about to start a service contract with you

Credit bureaus also sell information for marketing purposes. Say a lender is looking for potential customers with poor credit who might need a credit card. The lender will reach out to a credit bureau, which will then sell the lender a prescreening list of qualifying individuals and their basic contact information. (If you’ve ever wondered how you end up with so many preapproved credit cards flooding your mailbox, this is it.)

However, there are rules that protect you and your data — particularly the Fair Credit Reporting Act (FCRA).

The FCRA is a law that states you have the right to know your credit report and the right to dispute any errors on your credit report. It also lays out what is a “permissible purpose” for a lender to pull your credit and what is an “impermissible purpose.”

If a potential lender, landlord, utility provider, future employer, insurer — you name it — wants to view your full credit report, they must have a permissible purpose and your permission first. In some cases, a potential lender will simply let you know that they will do a credit pull, and by following through with the application, you grant them permission to do so. In other cases, a landlord might have you use a tenant screening service like ExperianConnect, where you have to download your credit report and share it with them directly.

If you aren’t comfortable with credit bureaus prescreening your information and sending it to third-party lenders, you can use OptOutPrescreen.com to prevent this. Continue onto the “What To To Do In Case of Fraud Or Identity Theft” section to learn more ways to protect your credit report and personal information.

Credit Reports VS Credit Scores

Since credit bureaus use your credit history to compile both a credit report and a credit score, it’s important to know the difference between the two.

Credit Report Credit Score

A report prepared by credit bureaus that shows an individual’s credit history, including payment history, loan balances, credit limits, and personal information (such as your social security number, birth date, and address).

VS

A number that indicates an individuals creditworthiness and is based on the individual’s credit history, payment history, and other data compiled by credit bureaus.

On a credit report, you’ll see detailed information about your credit history. A typical credit report will give you a full breakdown of all your open or closed credit accounts, bank accounts, loans, and payment history. Below, you’ll se an example of a credit report and what it might include (this is only page 1 of 4, so you can imagine how detailed your full credit report might be):

The Complete Guide To Credit Bureaus: Equifax VS Experian VS TransUnion

A credit score, on the other hand, provides much less detail. You’ll usually be given your credit score in tandem with a graphic indicator of whether your credit score is poor, fair, good, or excellent. You may be able to drill down to see the factors that affect your credit score, and you may not. Here’s an example of a credit score and how it might appear:

The Complete Guide To Credit Bureaus: Equifax VS Experian VS TransUnion

Think of it like this: a credit report is a detailed report of what your credit history is, while a credit score is an interpretation of what your credit history means. Your credit score is one of the biggest factors lenders use when considering loan applications; the higher the score, the more likely you are to pay your loan back — at least, in a lender’s eyes.

It’s worth noting one more key difference between credit reports and credit scores. Credit bureaus are legally obligated to give you a free credit report once a year, whereas there is no law requiring them to provide a credit score. This means you’ll have to pay a fee to access your credit score through one of the “big three.” There are free credit score sites if you want to avoid this fee. Check out our post The Best Free Credit Score Sites to learn more.

Note: In certain situations — like unemployment, identity theft, and fraud — you can access your credit report multiple times a year without charge.

How Credit Scores Are Calculated

Credit scores are all based on similar data but can vary significantly depending on the credit score model. Credit scores are generally affected by the following:

  • Your payment history
  • How much credit you use versus how much credit is available in an account
  • The number of accounts you have open
  • How long your accounts have been open
  • The types of credit you have (such as credit cars, loans, mortgages, etc.)

How this information is transformed into a credit score depends on the credit model being used. There are two main types of credit models: FICO scores and VantageScore.

FICO Scores VS VantageScore

The FICO score model was created by Fair Isaac Corporation in 1989 (hence the name FICO). FICO credit scores range from 350 – 850 and are determined by these five factors, which are ranked in terms of importance by percentage:

  • Payment History: 35%
  • Amounts Allowed: 30%
  • Length Of Credit History: 15%
  • New Credit: 10%
  • Credit Mix: 10%

The VantageScore model was created by Equifax, Experian, and TransUnion in 2006. This model also uses a 350-850 scale. Scores are determined by the following six factors that are ranked by level of importance rather than a percentage:

  • Payment History: Extremely influential
  • Percentage Of Credit Limit Used: Highly influential
  • Age & Type Of Credit: Highly influential
  • Total Balances & Debt: Moderately influential
  • Available Credit: Less influential
  • Recent Credit Behavior & Inquiries: Less influential

VantageScore claims that it is “the scoring model that is more accurate.” However, the FICO scoring model is used more predominantly in the lending industry.

Why Is My Credit Score Different With Each Bureau?

It makes sense that your credit score may vary depending on whether the potential lender is using the FICO or VantageScore model. But when the “big three” all use the VantageScore model, why do you get a different credit score from each credit bureau?

Remember earlier when we said that credit institutions aren’t required to share information with the credit bureaus? They can choose to share data with one, two, three, or none of the “big three.” This means that Equifax, Experian, and TransUnion don’t have access to exactly the same data, which accounts for the difference in credit scores.

This is why it’s important to treat your credit score as a “guesstimation” rather than an end-all number. Credit scores are ever-changing and lenders all have their own way of calculating and evaluating your credit score. Check your credit score so you have a general idea of what it is, and try to keep your score as close to 850 as possible, but don’t stress over-much about the exact three-digit number.

Reasons To Use A Credit Bureau

Now that you know what credit bureaus are and how they work, when should you use one? It’s simple: use a credit bureau anytime you want to know or need to know your credit report or credit score. Here are five of the most common scenarios for when you should use a credit bureau.

 

1. When Applying For A Loan

When applying for a loan, a potential lender is going to consider both your credit report and credit score, so it’s extremely important that you know your credit report and score beforehand. This way, you can correct any errors on your credit report and make sure you meet the lender’s minimum borrower requirements before you apply.

If there are errors, they can take a while to set right. Additionally, if you don’t meet the credit score requirement, raising your credit score can take time. Knowing the state of your credit before applying gives you the time to put your best foot forward and significantly increases your chances of being approved for a loan.

For more tips and tricks about increasing your chances of securing the loan you want, read our post on improving your loan application.

2. Before Renting An Apartment Or House

Potential landlords almost always run a credit report in order to decide if you’re trustworthy enough to make your monthly payments on time. Knowing your credit report beforehand is key. Again, if there are any errors, you can correct them before your future apartment or house is on the line. Or, if there is a missed payment or some other potential red flag on your credit report, you can try to explain the situation to your landlord in advance rather than being flat-out rejected.

3. To Improve Your Credit Score

If you are wanting to monitor and improve your credit score, you need to know your score first. Each of the “big three” allows you to purchase your credit score. They also offer credit monitoring subscriptions that allow you to regularly view your credit score and receive alerts when there are any changes to your credit score.

If you don’t want to pay for a monthly credit monitoring service, check out the best free credit score sites.

4. To Doublecheck For Credit Errors

As we mentioned earlier, you don’t want to be stuck with an error on your credit report right when you’re in the middle of the application approval process for a new loan or mortgage. Check each of the big three credit bureaus for errors as they all collect and maintain different information.

5. To Prevent Fraud & Identity Theft

Another benefit of using a credit bureau is fraud prevention and identity protection. If you stay on top of your credit report, you can pinpoint anything fishy and secure your information. When it comes to fraud and identity theft, the sooner you notice a problem, the better. One of the best parts about using one of the “big three” credit bureaus is that they all offer some form of fraud monitoring and extra security measures (which we will cover in more detail).

Bonus: To Help Run Your Business

As an added bonus, Equifax, Experian, and TransUnion all offer additional business services to help business owners manage, expand, and secure their small businesses. These services include everything from analytics to customer acquisition to risk management to fraud prevention and more.

What To Do If There’s An Error On Your Credit Report

If you find an error on your credit report, you’ll need to report and dispute that error with each individual bureau since each bureau collects and utilizes different information. Each bureau has their own process for disputing. You’ll need to go to their individual sites to find details on how to fix an error on your credit report.

One of the reasons it’s so important to check your credit report regularly is that it can often take months to properly fix an error on your credit report. For more details on common credit report mistakes and how to dispute credit report errors, visit the FICO website.

What To Do In Case Of Fraud Or Identity Theft

The Complete Guide To Credit Bureaus: Equifax VS Experian VS TransUnion

When it comes to fraud and identity theft, you don’t want to take any chances. If you suspect fraud related to any of your credit cards, bank accounts, or identity — or if your identity has been stolen — it’s important to take action right away. You can do so by submitting a fraud alert or security freeze (sometimes known as a credit freeze).

Both a fraud alert and security freeze are steps to secure your credit report and personal information, but they differ slightly.

Fraud Alert Security Freeze

A fraud alert warns credit bureaus that there might be fraudulent activity, so potential lenders will need to take extra measure to verify your identity before extending credit.

VS

A security freeze blocks lenders from accessing your credit report at all until the freeze is lifted by you (usually using a pin).

Fraud alerts usually last 90 days (unless you’re an identity theft victim, in which case you can extend the alert). To place a fraud alert, contact Equifax, Experian, or TransUnion and follow their instructions. You only need to contact one of the big three credit bureaus to place a fraud alert as they will notify the other two credit bureaus.

A credit freeze has the advantage of being much more secure. However, you will have to lower the freeze each you time you or a lender need to view your credit report, and you may be required to pay for the service. Unlike a fraud alert, you will have to place a security freeze with each of the three bureaus.

How Do The Big Three Credit Bureaus Compare

Now that you know the basics about credit bureaus and the reasons to use one, how do you know which credit bureau to use? How do the big three compare to each other? And what products do each credit bureau offer? Here’s a basic breakdown that compares Equifax, Experian, and TransUnion. Read on to learn more about each credit bureau.

Equifax Experian TransUnion

Free Annual Credit Report

✓

✓

✓

Credit Score

$15.95

$19.99

$19.95

Credit Monitoring

✗

Starts at $0/mo

$19.95/mo

Identity Protection

✓

✓

✓

Business Credit Score

✓

✓

✓

Number of Business Services

11

12

15

Equifax

The Complete Guide To Credit Bureaus: Equifax VS Experian VS TransUnion

Best For…

Individuals looking to check their Equifax credit report and score and in need of a free credit lock service.

The oldest of the three credit bureaus, Equifax has been around since 1899. While the company has grown significantly over the years, the Equifax motto to “always focus on its customers” has stayed the same. Today, Equifax offers basic credit report and credit score services as well as several business products. The most notable aspect of Equifax is its free credit lock service that allows individuals to protect their data at no additional cost.

Products Offered

Equifax offers basic credit report and credit score services, as well as a free credit lock service.

  • Credit Report: As with every credit bureau, you can access your free Equifax credit report at annualcreditreport.com.
  • Equifax Credit Score: You can purchase an Equifax credit score for $15.95. This score will be accessible for 30 days.
  • Lock & Alert: This free service allows individuals control over their credit report by locking and unlocking the report as needed. They even have a mobile app and send alerts every time your account is unlocked or locked.

Business Services

You can purchase a single business credit report from Equifax for $99 or a multi-pack for $399.95. You can use this to view your own business credit or to ascertain the credit health of a potential business partner, supplier, or new customer.

In addition to business credit reports, Equifax offers 11 products to help you run your small business. These products range from customer acquisition to risk mitigation to credit monitoring to fraud prevention and more. Visit the Equifax website to learn more about their business offerings.

Experian

The Complete Guide To Credit Bureaus: Equifax VS Experian VS TransUnion

Best For…

Individuals looking to view their Experian credit report or to actively monitor their credit report and credit score from all three credit bureaus.

Equifax began as part of TRW Information Systems and Services INC. back in 1968, and has since had a long history of acquisitions and advancement. Of all three bureaus, Experian offers the most personal products for monitoring and protecting your credit. What really sets Experian apart is that you can monitor your credit report from each of the three bureaus, so you can have all your credit information in one place. Experian also offers a FICO score simulator, which is invaluable for seeing what your FICO score could be if you make changes to your credit.

Products Offered

Experian offers personal credit monitoring and identity protection products as well as loan matching and credit card matching services.

  • Credit Report: As with every credit bureau, you can access your free Experian credit report at annualcreditreport.com.
  • Experian Credit Report & Score: You can purchase your Experian credit report and FICO credit score for $19.99. This purchase is only good for a one-time view.
  • 3 Bureau Credit Report & FICO Score: For $39.99, you can view your Experian, Equifax, and TransUnion credit report as well as your FICO credit score. This purchase is only good for a one-time view.
  • Experian CreditWorks Basic: View your Experian credit report for free every month.
  • Experian CreditWorks Premium: For $24.99/month, you can view your FICO score and gain access to Experian’s credit monitoring, identity protection, and credit lock services. This service includes the 3 Bureaus Credit Report. This product lets you view your credit reports and credit score daily, and it includes a FICO score simulator as well.
  • Experian IdentityWorks Plus: Experian’s identity protection service starts at $9.99/month and includes dark web surveillance, identity theft insurance up to $500,000, lost wallet assistance, credit lock, and identity theft monitoring and alerts. Includes credit monitoring for Experian and FICO score alerts. You can add child identity protection as well.
  • Experian IdentityWorks Premium: Experian’s most expensive identity protection service is $19.99/month and includes dark web surveillance, identity theft insurance up to $1,00,000, lost wallet assistance, credit lock, and identity theft monitoring and alerts. Includes credit monitoring for all three credit bureaus and FICO score alerts. You can add child identity protection as well.

Note: For Experian CreditWorks and IdentityWorks products, you can receive a discount for purchasing an annual subscription rather than a monthly subscription.

Business Services

Experian does offer business credit scores, although they aren’t forthcoming about the cost. The credit bureau also offers Experian Connect (a tenant screening service) and Experian Mailing List Builder (a customer acquisition service).

In addition, Experian offers 11 other business services ranging from customer management to risk management to debt recovery to consulting services and more. Visit the Experian website to learn more about their business offerings.

TransUnionThe Complete Guide To Credit Bureaus: Equifax VS Experian VS TransUnion

Best For…

Individuals looking to check their TransUnion credit report and score and to manage their business and its credit.

TransUnion started back in 1968 as a holding company for a railroad leasing organization known as Union Tank Car Company. Today, TransUnion is the smallest of the three credit bureaus but packs the biggest punch where business services are concerned. TransUnion also offers a credit score simulator — it is a great tool for improving your credit score as you can see how your credit could be affected if you made certain changes to your credit.

Products

TransUnion offers basic credit report and credit score products, as well as a free credit monitoring and identity theft service.

  • Credit Report: As with every credit bureau, you can access your free TransUnion credit report at annualcreditreport.com.
  • TrueIdentity: This is TransUnion’s free credit monitoring and identity theft protection service. It includes unlimitedTransUnion credit reports, a credit lock service, and alerts.
  • Credit Monitoring: For $19.99/month, you can have access to unlimited TransUnion credit report and score views, as well as credit lock, credit change alerts, and a score trending and score simulator tool.

Business Services

TransUnion offers business credit scores, although they aren’t forthcoming about the cost. The credit bureau also offers SmartMove, a tenant screening service.

In addition, TransUnion offers business products covering 14 fields, including marketing, fraud detection, healthcare revenue protection, customer acquisition, and more. Visit the TransUnion website to learn more about their business offerings.

Which Credit Bureau Should I Use?

Now that you know a little more about each of the three credit bureaus, the question becomes: Which credit bureau should I use?

The answer is all three of them.

We promise this isn’t a trick answer. Since each credit bureau collects different data regarding your credit history, it’s incredibly important to check your credit report with Equifax, Experian, and TransUnion. Luckily, you are legally guaranteed a free annual credit report from each bureau.

One recommendation is to stagger your annual free credit report. Check your Equifax report, then your Experian report four months later, and then your TransUnion report after another four months. This way you can always have a rough idea of what your credit report looks like without losing a penny. Another option is to use ExperianCreditWorks, which monitors all three credit bureaus and your FICO score for $24.99 a month.

If you simply want more control over your credit report and credit score, Experian offers the most bang for your buck in terms of personal credit monitoring and identity protection. However, TransUnion offers the most business-related products.

Ultimately, choosing which of the three credit bureaus’ monitoring services is right for you will depend on your budget and the level of control you want. The most important thing is to actually monitor your credit regularly. Take advantage of your free annual credit reports and know your credit score at the very least. Being proactive about your credit report can help ensure your credit report is accurate and can help catch any early signs of fraud, and knowing your credit score is the first step to improving your credit score.

Read our post 5 Ways To Improve Your Personal Credit Score and The Ultimate Guide To Improving Your Business Credit Score to learn more.

The post The Complete Guide To Credit Bureaus: Equifax VS Experian VS TransUnion appeared first on Merchant Maverick.

“”

SBA Loans For Startups: Types, Terms, and How To Apply

Your startup is off the ground and you’re ready to make your next move, but you need funding — or maybe you have a fantastic idea that will completely shake up your industry, and you’re anxious to get your project rolling. Whether you’re in the early stages of setting up a new business or you need a boost to get started, financing is a necessity. However, when lenders look at you, they don’t see the “next big thing.” Instead, they see just one other big thing: risk.

Startups are viewed by lenders as bigger risks than established small businesses, but don’t give up just because you think funding isn’t available. Although it may be more difficult to obtain startup unsecured business loans, it isn’t impossible. With SBA loans for startups, you’ll have access to the financing you need without high interest rates and unfavorable terms.

Ready to grow your business or find government loans to start a business? Read on to learn more about the loan options that can take your startup to the next level.

How Can The SBA Help My Startup?

The Small Business Administration was established to provide small business owners with the resources they need to successfully operate their own businesses. In addition to training and advocacy, the SBA offers loan programs that give business owners the money they need for anything from acquiring a business or franchise to hiring new employees to funding equipment purchases.

The SBA helps all small businesses, including startups. It’s no secret that startups are viewed as riskier endeavors. Whereas established businesses have proof of their success in the form of financial statements, tax returns, and other documents, startup owners are reliant on their business plans and industry experience. After all, the idea behind a startup may be a game-changer, but it isn’t yet proven—at least not in the eyes of a lender.

The SBA offers different loan programs than you’ll see elsewhere. In fact, funding isn’t distributed directly through the SBA. Instead, they have established several loan programs targeted at small businesses and startups through intermediaries — think banks, private lenders, and even non-profit organizations. The SBA has outlined a set of standards for each program; because the administration backs these loans, there’s less risk for lenders – and more funding opportunities for you.

These standards keep interest rates low and terms flexible. SBA loans are designed to help businesses grow and/or stay above water (as opposed to drowning in debt).

Types Of SBA Funding For Startups

The SBA doesn’t offer funding that is specific to just startups. Instead, new businesses can qualify for many of the programs that are used by established businesses. Most of the SBA loan programs don’t have a requirement for time in business. However, it is important to note that you will have to find an intermediary that works with startups once you’ve evaluated your options and selected the type of loan that works for your business.

Microloans

The first resource for startups that need smaller loans should be the SBA Microloan program. Under this program, small businesses can receive up to $50,000 from a non-profit intermediary. On average, the typical amount funded through the Microloan program is $13,500.

Microloans are available to startups provided that they are for-profit businesses and have a solid business plan. Interest rates vary by lender, ranging from 6.5% to 13%. The average typically falls on the lower side at approximately 7.5%. The maximum maturity for a microloan through the SBA is 6 years.

Fees may be required by the intermediary to receive a microloan. Intermediaries can charge between 2% to 3% of the loan amount for packaging fees. Additional fees to close the loan, including recording fees, collateral appraisals, and credit reports, may also be passed on to the borrower.

The SBA limits how the funds from microloans are used by the borrower. Loan disbursements can be used to purchase materials, furniture, supplies, inventory, and other necessary items for the startup. The money can also be used as working capital. Funds can not be used to purchase real estate or to pay off or refinance existing debt.

The SBA Microloan program is a great choice for any startup that needs working capital or to purchase equipment that will help expand the business or get a project off the ground. However, startups that need more capital or don’t want as many limitations on how they spend their funding will be better served by another SBA loan product. If microloans seem to fit your needs, learn more before connecting with a lender.

Standard 7(a) Loans

The SBA 7(a) program is the most popular choice for most startups and small businesses because of the flexibility it offers.

Startups can receive up to $5 million in funding through the 7(a) loan program. In addition to having access to higher loan amounts, borrowers will also have more flexibility in how they can use the funds. Standard 7(a) loans can be used for equipment or inventory, the purchase of property, refinancing debt, renovations, or other purposes.

Under this program, payment terms vary depending on how the loan proceeds are used and the borrower’s ability to repay the loan. For real estate purchases, the maximum repayment term is 25 years. If the proceeds are used for equipment financing, inventory, or working capital, repayment terms are set for a maximum of 10 years. Interest rates vary but remain very competitive at 7.25% to 9.75%. Borrowers can also expect to pay up to 3.5% for guaranty fees, and a down payment may be required with the purchase of real estate or equipment. Find out more about the terms, rates, and eligibility of SBA 7(a) loans.

The long repayment terms, low interest rates, and overall flexibility make this a top choice for many startups and small businesses. That said, 7(a) loans can take a while to be processed and funded — a potentially major drawback for business owners who need cash fast. Potential borrowers can expect to wait a minimum of 30 to 90 days to get through the entire process from application to funding. Startups that require money sooner should consider other options, such as peer-to-peer lending or another source of funding.

SBA Community Advantage Loans

A startup that doesn’t meet the eligibility criteria for the standard SBA 7(a) loan should consider applying for the SBA Community Advantage program. This program offers very similar rates and terms to the traditional 7(a) program with just a few minor differences.

One of the most significant differences is the maximum amount that can be borrowed through this program. Borrowers can receive up to $250,000 with an SBA Community Advantage loan. The identical guidelines from the 7(a) program apply for how the money is spent. It can be used to purchase another business, finance equipment, or for just about any business purpose. Interest rates for these loans are comparable to those set forth by the lender based on SBA guidelines.

While the lowered maximum loan amount is a drawback, this program can be extremely beneficial for startups. This is because Community Advantage loans are designed for underserved communities, such as low-income areas. However, startups are also qualified to receive these loans. Businesses that have been operating for two years or less that have been disqualified from other loans may receive a Community Advantage loan if all requirements set by the SBA have been met.

SBA Express Loans

Another SBA product similar to the standard 7(a) loan is the SBA Express Loan program. This loan program offers benefits including low interest rates and long repayment terms. However, there are two main differences between the 7(a) and the Express programs: the maximum loan amount and the approval turnaround.

Applicants for the SBA Express loan can receive up to $350,000 through the program. This could be a drawback for anyone seeking more capital. However, this program’s biggest advantage is that it comes with expedited turnaround times. After the application is submitted, an approval decision is guaranteed within 36 hours. Although the time it takes to complete the process and receive funding could add weeks to the timeline, getting an approval quickly means that small business and startup owners no longer have to shop around and can rest assured that the money they need will soon be on the way.

Because only a maximum of 50% of the loan is backed by the SBA, interest rates may be slightly higher than the standard 7(a) loans. However, all interest rates must fall within the SBA’s guidelines, so borrowers won’t get slapped with ridiculously high interest rates.

If this sounds like it’s the right type of loan for your startup, learn more about SBA Express loans.

SBA CDC/504 Loans

The SBA CDC/504 loan program is designed for small business owners who want to make a fixed asset purchase to expand or update their business. This loan provides funding for the purchase or upgrade of commercial space or land, the purchase of long-term equipment, or refinancing debt related to the upgrading or expansion of the business.

This loan program is different because it requires the borrower to work with two partners to finance 90% of the costs of the project. A bank or other lender will loan a maximum of 50% toward the project cost. A Certified Development Company, or CDC, will provide up to 40% of the cost of the project. 504/CDC loans are backed by the SBA. The borrower is responsible for paying the remaining 10% of the project cost.

The interest rates for these loans are determined by the 5-year and 10-year U.S. Treasury issues market rates. Currently, maximum interest rates are just above 5%. Terms of 10 and 20 years are available under the 504 loan program.

This program is a good choice for startups looking to expand or improve their commercial space. With fixed interest rates, longer terms, and up to 90% financing, this is a very competitive product. However, business owners seeking capital or funds to use for other purposes will be better off applying for other SBA loans. Potential borrowers will also have to take the time to find a lender and a CDC to work with under this program, which could be time-consuming.

SBA Startup Loan Borrower Requirements

Who can qualify for a startup SBA loan? Restaurant startups, tech companies, or any other businesses that have been in business for two years or less (and meet the requirements of the SBA) are eligible.

It’s important to note that because these loans have such favorable rates and terms, they can be difficult to obtain. In order to get an SBA startup business loan, you’ll have to find an intermediary that works with startups. You’ll also need to come prepared with the right credit score and documentation to qualify.

For all of the SBA sources of funding for startups mentioned here, there are a few basic requirements across the board. Qualified businesses must be for-profit operations. They must do business in the United States, and they must have an adequate amount of owner equity. SBA loans should also be pursued after all other means of funding have been exhausted. The business must also demonstrate a reasonable need for requesting the loan.

Businesses that invest in real estate, engage in illegal operations, operate as non-profits, or specialize in loaning money are disqualified from applying for these programs.

To qualify for an SBA loan, one of the most important things to remember is that a good credit score is required. Generally, scores should not fall below 680, but this can vary by lender. Credit reports should reflect a good payment history, and any negative items must be explained to the lender. There should be no recent bankruptcies, foreclosures, or tax liens on the report. Personal credit history and business history (if applicable) will be considered by the lender.

If loan proceeds are to be used to acquire a business or to purchase property or equipment, equity or a down payment of 10% or more may be required based on the lender. Ready to learn more? Read on for more information about the requirements of SBA loans.

Do SBA Startup Loans Require Collateral?

Another potential requirement of receiving an SBA startup loan is collateral. In short, collateral is something of value that is pledged in the event that a borrower defaults on the loan. Collateral can be real estate, equipment, vehicles, or other items of value.

Because startups are seen as riskier investments by lenders, it’s very common to have to put up collateral in order to receive funding. The one exception to this rule is when the loan does not exceed $25,000. Through the 7(a) standard, Express, and Community Advantage programs, no collateral is required under SBA guidelines for any loan up to $25,000. Loans exceeding this amount will require collateral potentially valued up to the total amount of the loan. For CDC/504 loans, the project being financed often serves as the collateral.

For microloans, the SBA does not require collateral but does advise lenders to follow lending best practices and collect collateral or equity if deemed necessary.

Personal guarantees are also required to obtain SBA loans. This means that a borrower agrees to put up personal assets if they default on the loan. In the event that a startup does not have enough business property, personal assets will be used to back the loan.

One important thing to note is that while startups will not necessarily be disqualified from SBA loans by a lack of collateral (if all other conditions are met), your chances of being funded will improve if you have at least some collateral.

How To Get An SBA Loan For A Startup

Now that you’re familiar with the options the SBA has to offer and you’ve found a product that fits your needs, it’s time to get the application process rolling. The first step is to find an SBA-approved lender that operates in your area. If you have a working relationship with a financial institution, you can ask for recommendations. You can also be connected with a lender through the SBA’s Lender Match service.

In addition to finding a lender that offers SBA loans, it’s also important to inquire as to whether they work with startups. Some lenders see startup companies as too much of a risk, so it’s important to ask before devoting too much time to the process. You’ll also want to ensure that they work with startups on the specific loan that’s grabbed your interest.

Once you’ve connected with a lender, you’ll have to speak with them on the phone or, in many cases, meet with them face-to-face. While each lender has its own requirements, there are a few things you’ll always need to have on hand when applying for an SBA loan.

Because startups don’t have the history of a more established business, documentation — like three years of business income tax returns or several years of business financial statements — won’t be available. Instead, you can provide a few other standard documents, as well as a couple of additional items required from new businesses.

As previously mentioned, credit scores and reports are extremely important. Even if you haven’t yet established business credit, your personal score and report will be evaluated by a lender. If you aren’t sure of where you stand, check out these resources for getting your free credit report online. Dispute any inaccuracies with the credit bureaus and be prepared to explain any black marks on your report.

Additional SBA startup loan requirements include your personal financial statement, personal income tax returns for the last three years, resumes for each principal of the business, and your business certificate and licenses.

Because you are seen as a risky borrower, you will need a solid business plan that includes details about the current status of your business, as well as future plans. You will also need business projections. A projection of at least one year is the minimum, but more may be required by your lender. You must also be prepared to prove that you have several years of experience in the industry. A minimum of 2 years is generally preferred.

The lender will evaluate your personal credit, your business plan, and your ability to repay the loan. Once the SBA startup loan application process is completed and all paperwork has been submitted, you’ll simply need to wait for final approval. This could take weeks or even months if a challenge arises. With an SBA Express loan, you’ll receive your decision within 36 hours. Once approved, you’ll work with the lender to close your loan and receive your funds.

Final Thoughts

The process for obtaining an SBA loan is daunting for any business. As a startup, the process can be even more complicated. However, with a solid business plan in place and a good credit score, it’s possible to obtain the funding you need with competitive rates and terms and put your new business on the path to success. Good luck!

The post SBA Loans For Startups: Types, Terms, and How To Apply appeared first on Merchant Maverick.

“”

Should I Buy A Franchise & How Do I Start?

buying a franchise

Becoming a franchise owner is a career path some people look into when their life circumstances change. For example, recent retirees or veterans returning to civilian life often turn to franchising. But really, you don’t have to have any special circumstances or qualifications to become a franchisee. You do, however, need to know what you’re getting into before you make such a major decision.

While there are plenty of benefits to owning a franchise, there are some downsides too, and you’ll need to determine which things you can live with and which will be dealbreakers for you.

There are specific perks to purchasing an existing franchise, also sometimes called a “franchise resale,” as opposed to opening a new franchise location: you will start out with a cheaper initial investment and an established customer base, with minimal setup or hiring requirements, provided that equipment and employees are included in the sale.

However, when buying an existing franchise, you’ll also need to do careful pre-purchase research to make sure the franchise is a good investment—the owner could be selling because the franchise is underperforming due to a poor location, for example.

In this post, I’ll go over the pros and cons of buying a franchise to help you figure out whether you should make the leap of becoming a franchise owner. I’ll also give you some useful tips on how to start down the path of owning your own franchise business.

Pros Of Buying A Franchise

Buying a franchise is not for everyone. But there are some unique benefits to this career move, making it perfectly suited to the right type of entrepreneur.

1. Turnkey Business

A franchise can be considered a “turnkey business,” which means that it has pretty much everything you need to start operations immediately. All you need to do is “turn the key,” so to speak, to open up for business and start selling.

With a franchise purchase, the sale typically includes the facilities, equipment, and software systems (including the point of sale and accounting software), and even the (already trained) employees in most cases. Your raw materials suppliers, operating procedures, and advertising strategies are already in place as well, requiring only your capital investment and personal labor to get started.

Besides having all the ingredients to start operations, as a franchisee, you open for business on Day 1 with a proven and successful business model. This helps undercut the risks of owning your own business, especially if you are new to business ownership.

2. Minimal Startup Costs

Aside from the cost to purchase the franchise, and sometimes the franchise transfer fee (you should try to get the selling franchisee to pay this if you can), there are negligible startup costs to get your franchise resale up and running, since, well, it’s already up and running!

You will, of course, have to start purchasing your own raw materials to keep operations going, though you will need to invest less startup capital overall than you would if you opened a franchise from scratch.

While business acquisitions have lower startup costs in general compared to new businesses, this is especially the case with franchise acquisitions, as the uniform nature of any franchise brand allows for few, if any, significant changes in operations from one owner to the next.

Note that when you buy an existing franchise, most franchisors will not have you pay a franchise fee—the costly fee required to open a new franchise—but they may require you to pay for initial training.

3. Built-In Support

Technical support, customer support, and other assistance is an inevitable and potentially costly part of just about any business endeavor. A big benefit of being a franchise owner is that you don’t have to figure these things out for yourself. The parent company typically provides training, marketing campaigns, assistance with management, and customer support. And when purchasing an existing franchise, support channels such as technical support, employee support, etc., will already be open and readily accessible, so all you’ll have to do is learn them.

Aside from an initial training fee when you join the franchise, the cost of training and other support channels is included in the royalty fees you pay the franchisor from your gross sales.

As a franchisee, can also easily access a network of support and advice from other franchisees online. Even if you just want to vent or relate to other franchise owners, there are plenty of websites and message boards where you can do this.

4. Brand Recognition

Everyone already knows your franchise brand and you already have tons of fans on day one. A well-known product advertises itself, meaning you will need to devote very little time and energy to marketing.

Though you will be required by the franchisor to spend some of your profits on advertising, you can rest easy knowing that your personal efforts will not be the only way people will find out about your business. In many cases, you simply pay the franchisor an advertising fee and do not undertake any marketing efforts yourself.

There’s also always a chance your franchisor will come up with a new product or viral national marketing campaign that could make your product even more popular, with no blood, sweat, or even tears required on your part.

5. Easier To Get A Loan

It is typically much easier to get a loan to buy a franchise than it is to get a loan to buy an independent business. A franchise is seen by lenders as less risky, as there is an established business model; with a franchise acquisition, there is an established revenue stream as well.

Many franchisors provide their own financing programs for franchise owners, and there are also alternative lenders who specialize in franchise financing. You might even be eligible to get a low-interest loan through the Small Business Administration if your franchise is listed in the SBA Franchise Directory.

For quick capital at somewhat higher interest rates, you will find plenty of alternative online lenders willing to help finance your franchise purchase or provide you with working capital or line of credit, should you need a loan later down the road.

Cons Of Buying A Franchise

Okay, so now that you know the upsides of buying a franchise, it’s important that you understand the pitfalls as well. Whether or not you can live with these downsides will determine whether becoming a franchise owner is right for you.

1. Fees & Expenses

Although there aren’t too many startup fees involved in a franchise resale, there are still significant fees and operating costs involved in franchise ownership overall.

It is a general rule in the franchise world that after various fees are taken out, about one-third of pre-tax profits go to the franchise. Some one-time and ongoing costs of franchise ownership include:

  • One-time franchise transfer fee (if the seller does not agree to pay it)
  • Initial training fee when you first start working for the franchise
  • Royalty fees, which allow you to use of the franchise’s logo and proprietary assets; often calculated as a percentage of gross sales, e.g., 5% of all sales, but may also be a fixed amount that is charged periodically, irrespective of sales
  • Advertising fees to support franchise-wide marketing campaigns (even if you don’t have any say over how your advertising dollars are spent)
  • Proprietary product costs—usually, you’ll have to purchase your products and/or raw materials from the franchisor or from their dedicated distributor, even though you might be able to find the materials cheaper elsewhere
  • Audit fees for periodic financial audits of your franchise
  • Renewal fee charged to renew your franchise contract once the current contract expires

All of these ongoing expenses cut into your margins, and if you’re not meeting your sales goals, it’s possible that your franchise will lose money and not be profitable, at least not right away.

Because of the various costs and fees associated with running a successful franchise, it’s important that you have some money saved or another source of income that you can live off of and use to help pay these costs until your franchise starts making decent money.

2. Competitive Threat

As a franchise owner, whenever a new location of your franchise opens in your area, you will wince and worry about how much of your business will be lost to the competing location.

Franchisors do maintain strict control over franchise territories to prevent market oversaturation, but they will err on the side of opening more locations in a territory to squeeze every last dollar out of that region, even if an individual franchise’s profit margins suffer.

Thus, every time a new franchise location opens in your territory, your market shrinks, and you have no recourse against your competitor; it’s not like you can just decide to move your franchise in a place of your choosing, or change up your product offerings, as you could with an independent business.

3. Less Control Over Business

Running a business where all procedures and policies are mapped out for you can be easier, in some ways. You don’t have to figure out how to run your business effectively because business-critical decisions have been decided for you, and are typically based on significant market research.

However, if you are a creative thinker or are used to managing a business on your own terms, franchise ownership might make you feel trapped and frustrated. Individuals who love coming up with innovative business solutions or who excel at finding more efficient ways of doing things will likely have more success as independent business owners.

4. Possibility Of Contract Terminations & Changes

One of the areas you don’t have any control over as a franchise owner is your business’s future as dictated by your franchise contract.

At the end of your contract term, the franchisor might cancel your contract if they’re not impressed with your franchise’s performance, or they could amend the contract to terms you don’t agree with. In such cases, you could be forced out of business or see reduced profits due to contract changes such as higher royalty rates, territory shrinkage, or others.

Although it is possible to negotiate the terms of any franchise agreement with the help of a franchise attorney, it is inevitably a David vs. Goliath type situation when going up against a big corporation with a lot of money and resources at their disposal.

5. Negative Press Can Hurt Sales

Yet another aspect you have little control over as a franchise owner is the company’s overall reputation. Consider how the following events could affect your business:

  • The company makes a tone-deaf advertising campaign that offends a lot of people
  • Employees at another franchise do something shocking/illegal
  • A company executive says/does something controversial or offensive

All of these are potentially newsworthy and hashtag-worthy events — you can probably think of several recent examples just off the top of your head.

Through no fault of your own, any bad press that attaches to your parent company in the public eye could hurt your franchise’s sales and even cause people to boycott your business.

Tips On Starting Your Franchise Journey

If you think you might want to buy a franchise, you can start with some simple tasks today or whenever you have some free time to do some research.

1. Be Strategic When Choosing Your Franchise Sector

Food —  particularly fast food — is typically the first thing that comes to mind when thinking about franchises, but there are plenty of franchising opportunities even if you don’t want anything to do with food service.

In addition to quick-service and full-service restaurants, other major players in the franchise industry include:

  • Gas stations & convenience stores
  • Clothing/shoe stores
  • Gyms
  • Beauty salons
  • Janitorial services
  • Hotels/motels
  • Real estate agencies
  • Car dealerships
  • Vision centers/optical goods
  • Private postal centers
  • Children’s services (e.g., daycare, preschool, kids’ sports)
  • Pet stores and services
  • Medical services

When determining which type of franchise you’d like to purchase, it’s important to consider market trends in addition to your own personal preference.

  • Which franchise sectors are growing, and why?
  • Which sectors are shrinking?
  • Which franchise brands have been doing well in recent years? Which ones are suffering?

These are just a few quick market research queries you can answer with some targeted Google searches.

2. Talk To Other Franchisees

Of course, you will want to talk to the owner of any franchise you’re considering buying and ask them why they’re selling and other pertinent questions. But it’s also important to get feedback from other franchise locations so you can get a well-rounded view of the particular perks and pitfalls of owning that type of franchise.

You can find the contact information for other franchisees in the Franchise Disclosure Document (I’ll talk more about that document in a moment) and also check message boards and blogs to find whatever “dirt” you can about the franchise. This way, you can know more about what you can expect and decide for yourself whether you’re willing to risk having a similar experience as other franchisees.

3. Determine Your Budget & Financing Options

Before you get too ahead of yourself, you need to know all the costs involved in purchasing a franchise and what you can afford.

Besides the cost of purchasing the franchise, startup fees, and working capital, you also need to factor in your personal expenses. According to the FTC’s Consumer’s Guide to Buying a Franchise (a must-read for any potential franchisee), it could take a year for your franchise to become profitable. Potentially, it could take even longer to turn a profit if the franchise was not profitable at the time of purchase. As a buffer, it’s important to have access to enough capital to ensure you will be able to survive even if your franchise doesn’t!

Once you have a rough idea of how much money you need, you can look into franchise financing options, if necessary. My posts on the best loans for franchises and how to get business acquisition loans are required reading if you’re researching loans to acquire an existing franchise.

4. What Is The USP?

When it comes to any business, the USP, or Unique Selling Proposition, is crucial in determining the business’s success. This is especially true with franchises, as the brand’s uniform nature makes it difficult to differentiate one franchise from the next. With that said, there are still important differences between different franchises within the same brand, and you need to figure out if the franchise you’re considering purchasing has something that makes it unique. Some examples include:

  • Prime Location: Is the franchise right off a popular freeway exit? How close is the nearest location of this franchise?
  • Added Features: For example, some McDonald’s restaurants have play structures and others do not.
  • Unique Building Or Business Space: A building’s age, design, and layout can all affect how attractive it is to patrons.

It may also be possible to add your own USP to a franchise. When working within the confines of a franchise contract, it can be difficult or impossible to offer something unique in terms of your products or services. However, there are still ways you can make your franchise location outshine the rest.

For example, you can keep your gym franchise much cleaner than the other gym locations in your city. Or, if you read online reviews saying that the tax preparation franchises in your town have incompetent staff, you can take efforts to make customer service shine at your tax prep franchise. You may also be able to invest in structural improvements before your grand reopening, such as improved equipment or a new franchise point of sale system.

5. The FDD & Other Pre-Sale Due Diligence

Once you determine which franchise interests you, you’ll need to do various pre-purchase due-diligence, such as reviewing financial documents, performing a business valuation, and making sure the franchisor approves of the transfer (they may not approve in some cases). Assuming you don’t have a legal background, hiring a franchise attorney can help you with most of these pre-purchase tasks.

Another important part of the pre-sale process reviewing the Franchise Disclosure Document (FDD). This document contains important information about the entire franchise brand as well as individual franchise locations and franchisees. If you find out in the FDD that the franchise you want to buy has had a lot of owners in the past few years, this may indicate that the franchise location is not profitable or that the franchisor has not provided adequate support to this location.

Final Thoughts

Buying a franchise is not right for everyone. However, it might be right for you if …

  • You want to own a business but don’t necessarily have a specific skill or vision
  • Lack of control over how to run your business doesn’t bother you
  • You have savings or additional income to live on until your franchise opens and becomes profitable (for example, retirement income)
  • You are a hard worker by nature and good at following the rules
  • The franchise you’re considering purchasing is a successful one and/or you have something unique you can add to make it successful

If you follow all of the tips I’ve laid out in this post, you will be well on your way to becoming a successful franchisee.

Quickly compare franchise loan options:
Lender Borrowing Amount APR Req. Time in Business Min. Credit Score Next Steps

$2K – $5M

Varies

6 months

550

Apply Now

smartbiz logo

$30K – $350K

6.36% – 9.57%

2 years

650

Apply Now

applepie capital logo

$100,000+

Approx. 9% – 16%

N/A

N/A

Compare

$25K – $500K

7.4% – 36%

2 years

620

Compare

For more information on lenders that will help finance your franchise purchase, contact us and we’ll be happy to suggest a suitable lending service to help you get that franchise loan.

The post Should I Buy A Franchise & How Do I Start? appeared first on Merchant Maverick.

“”

SBA 504 Loans: Your Guide To SBA/CDC Real Estate & Equipment Loans

The SBA 504 loan is a financing program offered by the Small Business Administration and Certified Development Companies. The loans, while selective, are open to eligible, for-profit small businesses operated by United States citizens and resident aliens. 504 loans are fit for small businesses in search of fixed interest rates with long-term financing and smaller down payments.

What Is The SBA CDC/504 Loan Program?

The SBA CDC/504 Loan Program is a financing program backed by the Small Business Administration. The goal of the program is to promote business growth and job creation through the support of small businesses.

The SBA connects recipients with a Certified Development Company (CDC). CDCs are non-profit organizations, certified and regulated by the SBA. These CDCs provide fixed-rate, long-term financing in partnership with lenders and the SBA. There are around 260 CDCs in the nation, which serve their local economies.

How Can SBA 504 Loans Be Used?

Often, 504 loans are referred to as SBA Real Estate Loans or SBA Commercial Real Estate Loans because of their strict usage policies, which make them a great option for purchasing fixed assets, like real estate.

In fact, proceeds from a small business real estate loan can only be used for fixed assets and few soft costs. The money cannot be used for working capital, inventory, or consolidating or paying debt.

Recipients of 504 Loans can use the proceeds to:

  • Purchase an existing building
  • Purchase land and land improvements
  • Construct new facilities
  • Renovate existing facilities
  • Purchase machinery and equipment for long-term use
  • Refinance debt in connection with renovating facilities or equipment

If your needs for financing don’t fit the bill, consider looking into the SBA 7(a) Loan Program, which offers broader options for small businesses.

CDC 504 Loan Pros & Cons

If you’re wondering whether this loan program is right for your small business, look into the pros and cons. Some small business owners prefer the 504 over the 7(a) loan and vice-versa. Consider the following if you’re looking into receiving a 504 loan:

Pros

  • Offers 90% financing, resulting in savings and improved cash flow for small businesses.
  • 504 Loan recipients often enjoy lower rates than those with traditional loans.
  • Recipients can include any 504 refinancing costs within the given loan.
  • Borrowers have the option to use given equity in the fixed asset as collateral.
  • The 504 Loan offers lower down payments of around 10%, compared to 25–30% on traditional loans.
  • Recipients of 504 loans can receive long-term capital: 20-year, fully amortized financing.

Cons

  • The CDC 504 Loan is selective about borrowers and usage of funds. If you meet all qualifications, this may be a positive for your business. For many businesses, however, this can be a burden. If you need funds for versatile needs and need a flexible loan, the 504 is not for you.
  • While borrowers can use funds to refinance eligible business operating expenses, there is a maximum 85% loan-to-value, meaning such operating expenses may not exceed 25% of the total value of eligible fixed assets.   
  • Prepayment penalties exist during the first half of the loan term. These rates are usually 100% of interest lost in the first year, 90% of interest lost in the second year, and so on, until the tenth year, in which it is equal to 0%.

SBA 504 Loans VS 7(a) Loans

If you’ve been doing your research on SBA loans, you know that 7(a) loans, like 504 loans, can be used to purchase real estate and equipment, construct, and renovate. So, what is the difference between a 504 loan and a 7(a) loan?

CDC / 504 Loans SBA 7(a) Loans

Loan Size

The CDC portion of the loan has a size limit, but the overall loan can be used to finance larger projects.

Offers flexibility for size projects, but are generally used for smaller sized projects.

Interest Rates

504 loans offer fixed-rate financing, which locks in low rates for the full length of the loan.

Usually has lower fees, but are variable, not fixed, and are adjusted quarterly. Rates typically rise over time.

Prepayment Penalty

High prepayment penalties

Prepayment penalties vary depending on loan

Loan Structure

  • 50% Bank Loan
  • 40% CDC Loan
  • 10% Borrower Down Payment

Varies depending on risk. Minimum 10% down payment for the borrower.

Loan Fees

Fees are negotiated per the 50% bank loan. Can be financed within the 504 loan.

Fees are based on the size of the loan. Can be financed within the 7(a) loan. An extra .25% of fees can be charged on portions of a 7(a) loan exceeding $1 million.

Do You Qualify? Borrower Requirements For SBA 504 Loans

To be eligible for an SBA 504 Loan, there are strict requirements a business must meet:

  • Borrowers must first meet the SBA size requirements
  • Businesses must have a tangible net worth less than $15 million.
  • You must also have an average net income less than $5 million (after federal income tax) the two previous years before applying.
  • Businesses must be for-profit
  • Businesses must be owned by U.S. citizens or resident aliens with permanent resident status.

For businesses wishing to gain financing for projects involving real estate, the business must occupy a minimum of 51% of rentable property for existing structures. Businesses intending to build a space must intend to occupy at least 60% of rentable property, with the intention of occupying 80% with growth.

As the 504 Loan is intended to directly create jobs, borrowers must also meet the job creation and retention requirement. This requires the business to create one job per $65,000 received in SBA financing. If the borrower is a small manufacturer, they must create one job per $100,000 borrowed.

If your business engages in other credible community goals, the job creation requirement can be waived. Such initiatives include community development goals, public policy goals, or modernizing facilities for health, safety, or environmental reasons.

There is no minimum credit score required, although it is best that you know ahead of time whether you can afford a small business loan.

SBA 504 Loan Terms, Fees, and Amounts

SBA 504 Loan Interest Rates & Fees

504 loans offer fixed rates and fees, set by the current market rate for 5-year and 10-year Treasury issues. If you’re receiving financing through a 504 loan, you can expect long-term fixed rates. SBA loan rates and fees will vary depending on the loan amount, lender, etc. 504 fees often include:

  • Interest Rates
  • CDC Servicing Fees
  • Central Servicing Agent Fees
  • SBA Guarantee Fees
  • Bank Fees
  • Third Party Fees (if applicable)
  • Prepayment Fees

SBA 504 Loan Borrowing Amounts

There is no maximum project size for businesses applying for a 504 loan. There is, however, a maximum SBA loan amount of $5 million. This debenture varies if the borrower is a small manufacturer or is planning an eligible energy project. Such borrowers can qualify for up to $5.5 million.

The CDC/504 Loan Application Process

Businesses applying for a 504 Loan should be prepared to provide evidence of eligibility, indebtedness, and creditworthiness. The 504 Loan application is roughly thirteen pages long and requires information on project cost, energy efficiency goals, debenture pricing, etc. Once the application is completed, it should be submitted to the CDC, which will then forward the information to the SBA Loan Processing Center.

Final Thoughts

The SBA 504 Loan Program is a great option for small businesses in need of cash for fixed assets, expansion, or modernization. If you need fixed interest rates, long terms, and a smaller down payment, this might be for you. Check out our SBA Loan Calculator to estimate everything you need to know about your individual loan.

If 504 loans aren’t quite what you’re looking for, try checking out the 7(a) Loan Program, which offers wider flexibility for many small business owners. Applying for financing can be an arduous task, so always consider your individual business and make your decision based on what’s right for you!

The post SBA 504 Loans: Your Guide To SBA/CDC Real Estate & Equipment Loans appeared first on Merchant Maverick.

“”

SBA Disaster Loans: Do I Qualify For One?

Whether your area was affected by a wildfire, tornado, record-setting hurricane or another catastrophic event, the next steps can feel daunting or overwhelming. Many homes and businesses find that insurance won’t cover as much as they thought—and that leaves a large gap between where they are now and the ability to move forward with everyday life as usual.

Thankfully, there is an option to finance the funds needed to rebuild—funds that can help not only business owners, but homeowners as well. Offering no upfront fees, no penalties for paying off the loan early, and low interest rates, an SBA disaster loan can help you begin to put the pieces back together after a life-altering event.

What Are SBA Disaster Loans?

While the primary mission of the Small Business Administration is to support entrepreneurs, with special programs focused on women, veterans, low-income, and minority business owners, this agency also offers low-interest loans to assist business owners, homeowners, and renters after a disaster. No matter where you fall in the insurance spectrum — whether you’re covered well, are underinsured, or have no protections — FEMA recommends applying for an SBA loan to cover gaps in insurance coverage or to provide bridge funding before the insurance check arrives.

Read on to find out more about the types of SBA disaster loans and to find the option that fit your situation best. It’s time to get the financing you need to recover your business and your life.

Business Economic Injury Disaster Loans

The Economic Injury Disaster Loan Program (EIDL) provides financial assistance to both small businesses and private, non-profit organizations that are located in a declared disaster area. Coverage depends on the amount of economic injury sustained but isn’t necessarily calculated by the actual physical damage to the business. Coverage for an economic injury disaster loan is capped at $2 million dollars, but the amount you can finance is based on the actual economic injury you’ve sustained after a disaster. So if sales have dipped because people simply can’t get to your storefront location, or the area was closed but your property isn’t damaged, for instance, an economic injury disaster loan may be able to help you cover costs associated with loss of business.

Am I Eligible For The Economic Injury Disaster Loan Program?

To be eligible for an economic injury disaster loan through the SBA, you’ll need to be located in a disaster-declared country or contiguous county. This type of loan is open to private organizations or small business owners who have sustained economic injury because of the declared disaster. In addition, repayment terms will be dependent on your ability to repay the loan.

Your first step in learning more is to visit the SBA’s Disaster Loan Assistance page where you can look up eligible disaster areas, apply online, and check your application status. Read on to learn more about the qualifications and other frequently asked questions in the proceeding sections below.

Business Physical Disaster Loans

If your business has sustained physical damage in a declared disaster area, you can apply for a physical disaster loan to receive the financial assistance you need to move ahead. There is no business too small or too large to apply—and most nonprofit organizations may also be eligible for an SBA loan to help rebuild after a disaster strikes.

Repayment terms can be flexible and will depend on your ability to repay the loan. Your repayment period can be up to 30 years with an interest rate that will not exceed 4% if you cannot obtain credit with another source and no more than 8% for those who have available credit options elsewhere.

How Can I Tell If My Area Is A Declared Disaster?

To check all currently declared disasters and determine if you can apply for disaster loan assistance, visit the U.S. Small Business Administration webpage for more information. You’ll find a listing of states, incidents, and affected incident periods.

If you know you are in a declared disaster area and you have sustained physical damage to your business, the next steps you need to take are to visit the SBA site and begin the application process for disaster loan assistance.

What Can An SBA Physical Disaster Loan Be Used For?

Business physical disaster loans from the SBA “must help return damaged property to its pre-disaster condition through repairs or replacements.” Funds can be used to purchase or repair machinery, equipment, fixtures, inventory, and of course, building improvements—anything at your physical location that was damaged by the disaster.

Home & Physical Property Disaster Loans

As mentioned at the beginning of the post, the SBA typically focuses on supporting the entrepreneur through small business growth. However, if you’re a homeowner or renter in a declared disaster area, you may also find help to rebuild from the U.S. Small Business Administration. The SBA offers home and property disaster loans—affordable financial assistance in the form of long-term, low-interest loans for any loss that isn’t covered by your insurance or other coverage means.

How Much Can I Borrow?

To repair your home to its pre-disaster state, you can borrow up to $200,000—but you won’t be able to use this as working capital to upgrade or make additions to your home unless these are required by a building authority or code update.

In addition to repairing structures, you also might be able to borrow up to $40,000 to replace your personal property such as clothes, furniture, or other contents in your home. You can’t use the funds to replace antiques, collections, a pleasure watercraft, or recreational vehicles, however.

If you are a homeowner or renter who needs to rebuild in a declared disaster area, this option from the SBA can be the boost needed to move ahead.

What Types Of Businesses Are Eligible For SBA Disaster Loans?

buying a franchise

Below are some of the more common questions relating to eligibility for an SBA disaster loan. While the SBA certainly has guidelines and eligibility requirements, there is hope even if you don’t have a lot of collateral or you have some past credit issues.

Is My Business Eligible For A Disaster Loan?

In addition to your business being located in an officially declared disaster area, there are some other guidelines to keep in mind when it comes to eligibility. Most of the qualifications to receive an SBA loan are covered in the answers to the most commonly asked questions below, but in a nutshell, it’s going to come down to your location, creditworthiness, ability to repay, and collateral.

More About The SBA Disaster Loan Process

Does The SBA (Or FEMA) Perform Credit Checks?

Yes, to obtain a disaster loan you will need to demonstrate a history of creditworthiness. The SBA will perform a credit check. If you’re worried that your lack of credit history will deter you from getting the funds you need, take heart –there’s another route to demonstrating your ability to pay. The SBA will examine your history of paying utilities, rent, or insurance as positive evidence that you can repay.

It’s a wise move to know your credit score before you apply, so you can be prepared. Take advantage of some of the best free places to check your credit and stay informed.

What About Disaster Relief Loans For Bad Credit?

As stated above, the SBA will perform a credit check on your accounts. While you need to show you have regularly made payments on accounts, you don’t need to be too concerned if you have a few negative marks on your credit report, as long as the majority of your accounts are in good standing with the reporting agencies.

Do I Need Collateral?

If you need more than $25,000, the SBA will likely require collateral to secure your loan. Typically, they will accept real estate or other assets to secure your loan, but don’t be too discouraged if you don’t have collateral. If you are otherwise eligible for an SBA economic injury loan and have no collateral to provide, for instance, you may simply be required to pledge what is available instead of being denied. The program is set up to be as accessible as possible, so you will be considered whether you have collateral or not.

How are Disasters Declared?

Only businesses located in an officially declared disaster area can access SBA disaster loans. Generally, there are seven ways a disaster can be declared:

  1. A Presidential Declaration for Individual Assistance is requested by the governor of a state. The presidential declaration activates FEMA and will automatically make SBA disaster loans accessible to businesses and private, non-profit organizations.
  2. An Administrative Agency Declaration can be made by the governor of the state to activate SBA’s disaster loan program available to businesses, homeowners, and renters alike.
  3. A Presidential Declaration for Public Assistance can also be requested by the governor. Once the President approves, business physical damage and economic injury loans are made available.
  4. The Secretary of Agriculture can declare a disaster area. The SBA will then also declare the availability of disaster loans relating to businesses engaged in agriculture.
  5. A Governor Certification Declaration occurs when a governor goes to the SBA directly and requests a declaration based on certification of the damages an area has.
  6. The Secretary of Commerce may determine that some eligible small businesses have economic injury directly related to commercial fishery failures or resource disasters.
  7. A Military Reservist Declaration can be made for individuals who are considered “essential employees” and are called up to active duty as military reservists during a period of military conflict. Working capital loans can be made available to businesses that aren’t able to meet ordinary and necessary operating expenses due to the absence of essential employees.

SBA Disaster Loan Terms & Rates

The table below will give you a quick peek of terms and rates for the two business-focused SBA disaster loans—the economic injury disaster loan and the business physical disaster loan.

SBA Disaster Loan Application Process

As mentioned above, your first step in the application process for an SBA disaster loan is to fill out an application at the Disaster Loan Assistance portal through the SBA. Here you will be able to verify whether you’re in a disaster area, apply online (or find the phone numbers you need), and check on your application once it’s been submitted.

When you’re trying to recover from a disaster and start rebuilding, time is of the essence. This is why it’s important to begin gathering the documents you’ll need to keep things moving forward:

  • Start making an itemized list of your losses
  • Include the estimate to repair or replace items
  • Obtain a copy of the necessary federal document (income tax information) that is referenced in the application
  • Provide a brief history and overview of your business
  • Gather business and personal financial statements

The good news is that, unlike a typical SBA loan, funding for a Disaster Loan can be completed in as little as 7-21 days. You may receive your funds in increments as you begin repairing to cover necessary costs.

Need An Alternative To Federal Disaster Loans?

If you’re forced to seek alternatives to an SBA loan, you’ll find you do have other options. Whether the SBA is denying disbursement or you simply want to shop around and find the best financing options for your particular situation, check out our Small Business Loans Comparison Page for more information. With an online loan, you may be able to get your funds faster, you’ll want to pay attention to rates and repayment terms; these will typically be less attractive than what the SBA can offer.

After a disaster, you may feel that you’re treading water for a while. Fortunately, with the help of disaster assistance loans, you do have hope and resources to make progress again. Follow the references listed above to learn more and start the healing and recovery process.

The post SBA Disaster Loans: Do I Qualify For One? appeared first on Merchant Maverick.

“”

SBA Loans For Veterans: Everything You Need To Know About VA SBA Loans

After serving their time in the military, many veterans choose to start their own businesses. In fact, military veterans own about 7.5% of the businesses in the United States. Just like any other small business owners, there comes a time when these entrepreneurs need funding, whether it’s for purchasing equipment, expanding the business, or funding a startup project. And like civilians, many veterans are looking for a business loan that will help them expand their business without forcing them to shoulder extra debt. For these business owners, an SBA VA loan could be the answer.

What Is The SBA?

Before going into the specifics of SBA loans for veterans, it’s important to first know what the SBA is and how it offers benefits to small businesses. SBA stands for Small Business Administration. This is a government organization that offers assistance to small businesses. Through the SBA, business owners have access to education, information, and training. The SBA serves as an advocate for small businesses and provides a critical piece of the entrepreneurial puzzle: business financing.

How Can The SBA Benefit Veterans?

Getting a business loan is tough for anyone, but it can be especially difficult for military veterans. This is because traditional loans require a strong financial history. Many veterans and servicemembers on active duty may find that they have gaps in their credit history. If they’ve been deployed for any length of time, they may not have credit cards, utility bills, mortgage payments, or other records credit unions use to judge creditworthiness. This can make obtaining a business loan very difficult, if not impossible.

This is where the SBA can be of service to veterans. While SBA loans require typical paperwork and items such as credit scores and income verification, lenders are able to work with military veterans’ unique situations to provide them with the funding they need. Because these loans are backed by the SBA, lenders are more willing to lend to qualified borrowers, while business owners enjoy VA SBA benefits including low interest rates and flexible terms. (This is ideal because veterans won’t be stuck getting subprime traditional loans that can push them into debt or even bankruptcy.)

Types Of SBA Loan Programs For Veterans

small business loans for veterans

The SBA offers multiple programs that provide money for veterans and servicemembers. SBA disabled veterans loans can also help inactive servicemembers that were injured in the line of duty. SBA loans are often difficult to obtain, but selecting the right product beforehand and knowing what to expect during the application process can help ease the path to obtaining funding.

The Veterans Advantage Loan Program

The Veterans Advantage Loan Program is similar to the 7(a) Loan Program — the most popular option for SBA loans. This is a popular choice for veterans and civilians alike because the loan can be used for just about anything. This includes expanding a business, acquiring a new business, financing a franchise, renovations, construction, equipment, working capital, or even refinancing old debt.

The Veterans Advantage Loan Program offers the same great benefits with reduced guaranty fees for veteran-owned businesses. Under this program, veterans can borrow up to $5 million. SBA 7(a) Veterans Loan for business acquisitions and expansions have terms of up to 10 years; commercial real estate purchases have terms up to 25 years, while equipment financing loans can be paid back over a period of up to 15 years.

For 7(a) Loans less than $125,000, there is no guaranty fee. For loans between $125,001 and $150,000, the fee is just 1%. For loans up to $350,000, the fee is 1.5%. The maximum upfront guaranty under this program is 3.75% for loans from $700,001 up to and including $5 million. Interest rates vary on these loans from 7.25% to 9.75%. Find out more about the terms and rates of SBA 7(a) loans.

One of the biggest drawbacks to an SBA 7(a) Loan is the timeline for receiving the money. The application, approval, and funding process can take months in most cases. However, the SBA does offer SBA Express Loans for veterans, which can provide faster approval, although the timeline for receiving the funds varies from lender to lender. Through the Express program, the SBA guarantees that the application will be processed within 36 hours. SBA Express Loans for veterans are available in amounts up to $350,000, and there is never an upfront guaranty fee for veteran-owned businesses.

The Military Reservist Economic Injury Disaster Loan Program

Reservists and National Guard members have learned to expect the unexpected. Servicemembers know that a deployment could come at any time, forcing them to leave family, friends, and business responsibilities behind. Military reservists and members of the National Guard who face economic hardship during or after a deployment can get the financing they need for their business with an SBA loan.

The Military Reservist Economic Injury Disaster Loan Program is designed to help cover operating costs while a veteran is on active duty. These loans are available in amounts up to $2 million with maximum terms up to 30 years. The maturity of the loan is based on the applicant’s ability to repay the loan. For these loans, collateral is required for any amount over $50,000. It’s important to note that the SBA will not turn down a loan simply for lack of collateral, but the borrower will be required to put up any available collateral, including real estate.

These loans are very attractive to military veterans because of their repayment terms and their low interest rates. SBA Veteran Loan rates are currently set at 4%. These loans provide the working capital needed to pay necessary expenses; funds can not be used for income or profit loss, refinancing debt, or business expansion.

Does The SBA Offer Grants For Veterans?

Unfortunately, there are no SBA grants for veterans. However, the organization provides a variety of resources to give veterans the tools they need to succeed in business. These programs are funded by the SBA and are available to servicemembers, veterans, and in some cases, military spouses.

SBA training programs include Boots to Business, the Women Veteran Entrepreneurship Training Program, Service Disabled Veteran Entrepreneurship Training Program, and the Veteran Federal Procurement Entrepreneurship Training Program. More details on these training programs are available through the SBA website.

What About The SBA Patriot Express Loan Program?

The SBA Patriot Express Loan program was established in 2007. Under this program, veterans and eligible spouses were able to apply for up to $500,000 in business funding at rates that ranged between 2.25% and 4.75%. Unfortunately, this program was discontinued in 2013 and is no longer available. Veterans that wish to take advantage of a similar program can apply for the SBA Express Loan.

Who Qualifies For A VA SBA Loan?

To qualify for the Veterans Advantage Loan Program, the small business must be at least 51% owned and controlled by veterans, service-disabled veterans, active-duty military in the Transition Assistance Program, or a reservist or National Guard member. Spouses of veterans, active-duty service members, reservists, or National Guard members also qualify, as well as spouses who were widowed because of death during service or death from service-related disabilities. These requirements also apply to SBA Express Loans.

Non-servicemembers and civilians can apply for an SBA 7(a) loan under the traditional terms. They will not receive the discounted guaranty rates provided to veterans.

Veterans and servicemembers applying for the Veterans Advantage Loan Program must meet all requirements set forth for SBA 7(a) Loans. Requirements include a credit score of at least 680 (in most cases) as well as personal collateral. The business must not be delinquent on any debts to the government and should not have any foreclosures or bankruptcies on their credit report. All borrowers should be in business for at least 2 years, although startups are eligible with adequate industry experience and a solid business plan.

Applicants must also have fewer than 500 employees and less than $7.5 million in sales each year. The business must be for-profit and should have a qualifying need to receive funding. It’s also recommended that alternative resources are sought before applying for an SBA loan. Businesses that engage in investments, rentals, and lending are not qualified. Learn more about the requirements for obtaining this type of loan.

The Military Reservist Economic Injury Disaster Loan Program is available to servicemembers, reservists, or National Guard members who are on active duty. The servicemember must apply for the loan while on active duty or for a period of one year following the end of active service or discharge.

Any veteran that has been dishonorably discharged from their branch of service is not eligible to receive funding through the SBA Veteran Loan Programs.

How To Apply For SBA Loans For Veterans

After choosing which VA SBA Loan is right for you, the next step is to be prepared for the application process. Although the process can be tedious, taking the necessary steps and knowing what to expect will help everything go smoothly.

Credit scores do play a factor in receiving SBA loans. Generally, a credit score of 680 or higher is required. There are multiple online resources that can be used to check your score and obtain a free credit report so that any errors can be addressed. Please note that if there are any negative items on your report, the lender will require a valid explanation. Personal and business credit reports are reviewed by all lenders.

For the SBA Veterans Advantage Loan program, a potential borrower must choose a qualified lender. The SBA offers a Lender Match service that connects businesses with a lender in their area. While some applications can be completed online, lenders generally require a phone call or in-office visit by the applicant.

For the Military Reservist Economic Injury Disaster Loan Program, applications can be obtained by contacting the Disaster Assistance Customer Service Center via phone or email.

After getting in touch with a lender, it’s time to gather the required paperwork.

  • DD Form 214 is required for veterans, service-disabled veterans, or spouses of veterans.
  • Transitioning active-duty military members, reservists, and National Guard members must have a copy of DD Form 2.
  • DD Form 1173 is required for spouses of transitioning active-duty military members, reservists, or National Guard members.
  • Military widows are required to have documentation from the Department of Defense.

To obtain an SBA VA Loan, you must be prepared to show that you can repay the loan, operate your business successfully, and put up 10% to 25% equity. Other documentation will be required during the application process, including:

  • At least three years of business and personal income tax returns
  • Financial statements, projections, business certificates, and licenses
  • A business plan.

Requirements vary, so you can ask your selected lender about their requirements so you can gather the needed information.

Veterans who choose SBA Express Loans will receive notification of approval within 36 hours, although funding the loan will take weeks or months. On average, the application, approval, and funding process for SVA 7(a) Loans takes a minimum of 60 to 90 days. If this timeline doesn’t work for you or you don’t meet the qualifications of obtaining an SBA loan, find out more about other funding options for veterans.

Final Thoughts

Although the process of applying for an SBA loan isn’t easy, the competitive terms make it worth it for many servicemembers, veterans, and their families. SBA Veteran Loans allow those who serve their country to be able to truly live the American Dream through successful ownership of their own business.

The post SBA Loans For Veterans: Everything You Need To Know About VA SBA Loans appeared first on Merchant Maverick.

“”

SBA Microloans: A Comprehensive Guide To Terms, Rates, And Eligibility

As a small business owner, you know the importance of financing in order to expand your business — particularly if you’re running a startup, and you know that you need funding in order to start your next project. While there are many options available to provide you with the capital you need to start a new business or grow an existing business, one of the best options is a loan through the Small Business Administration.

For smaller capital requirements, SBA Microloans offer many benefits that make them more desirable than other loan products on the market. Is an SBA Microloan the right choice for your business? Read on to find out more.

What Is The SBA Microloan Program?

Before getting into the details of the SBA Microloan programs, let’s first understand what a microloan is. Microloans are small amounts of money loaned to businesses at low interest rates.

The SBA Microloan program is designed to offer small loans of up to $50,000 to small businesses and startups. A microloan can be the ideal choice for a business that doesn’t require a lot of capital and wants a low-interest loan with great repayment terms. Home-based businesses and even self-employed individuals can obtain microloans through the SBA lending program.

How Do SBA Microloans Work?

While many SBA loan products are available through traditional financial outlets (banks, private lenders, and credit unions), the Microloan program is different in that funds are provided through non-profit or community-based organizations.

A non-profit organization can receive funding of up to $750,000 from the SBA during its first year in the Microloan program. After the first year, up to $1,250,000 can be borrowed annually, with a cap of $5 million at any one time. The nonprofit organization then acts as an intermediary, providing loans to small business owners.

Small business owners and startups can apply for up to $50,000 through a nonprofit’s loan program. The minimum microloan amount available is $500. On average, businesses obtain loans of $13,000 to $14,000 through the Microloan program.

One thing that is different about the SBA Microloan program when compared to other SBA funding programs is that rates and terms are not set by the SBA. The $50,000 borrowing cap is set by the Small Business Administration, but further details — including terms, rates, and eligibility requirements — are set by the intermediary organization.

Funds from the SBA Microloan program can only be used for certain purposes. This includes the purchase of inventory, supplies, fixtures, furniture, or equipment, or for use as working capital or startup capital.

SBA Microloan Eligibility

The SBA Microloan program is designed for established small businesses and for-profit startups. It is a great option for small businesses that need only a small amount of funding but still want to enjoy the benefits of an SBA loan product, including competitive interest rates and longer payment terms.

Because the loan amounts are small, the Microloan program is great for home-based businesses and the self-employed. Nonprofit day care centers are also eligible to receive these loans. In fact, all small businesses and startups are eligible to apply for an SBA Microloan. However, companies that need larger funding amounts (up to $5 million) or would like to purchase a business or refinance debt should consider other SBA options, such as the 7(a) loan. All businesses receiving an SBA Microloan should have a minimum of two years of industry experience and must be able to show sufficient income for repayment of the loan.

Since the terms of micro-funding for small businesses are set by the lender, SBA Microloan credit requirements vary. On average, though, an applicant should have a credit score of at least 640 when applying for one of these loans. Some lenders may be more flexible in determining the creditworthiness of applicants, so it’s important for interested business owners to speak with their local nonprofit lender to find out more specific details.

Any derogatory entries on a credit report will need to be explained to potential lenders. In some cases, a co-signer with sufficient credit and income to repay the loan may be required. It’s also important to note that there must be no bankruptcies or foreclosures listed on a credit report from the last one to two years, in most cases.

Some lenders will provide SBA Microloan bad-credit funding for those with less-than-desirable credit scores. Personal credit scores as low as 575 have been approved on occasion when all other requirements for SBA Microloans are met. To know where you stand in terms of credit, you can easily obtain your free credit score online. From there, you can determine what you need to do in order to clean up your credit and raise your score, if necessary.

Most lenders also require some form of collateral, but again, this is at the discretion of the lender. A lien on personal property, such as a vehicle or house, may be required. A personal guarantee from all owners with a 20% stake in the business is typically required as a condition of obtaining one of these loans.

In addition to having a good credit score, collateral, and a personal guarantee, applicants for SBA Microloans should be able to show a positive financial outlook for the future of their business. This is why it is important to have a solid business plan prepared to show to potential lenders, especially for startups.

Cleaning up your credit score, creating a professional and solid business plan, and being prepared to offer up collateral or a personal guarantee are all ways that you can boost your odds for receiving an SBA Microloans.

SBA Microloan Terms & Rates

Unlike with other SBA loan products, Microloan terms and rates vary from lender to lender. This is because the SBA does not set these standards. However, there are some averages across lenders to give you a better idea of what you should expect when it comes to repaying your loan.

The interest rates for SBA Microloans vary from 6.5% to 13%, making them competitive with other types of business loan products. The repayment terms are set by the lender, so this value varies, but the maximum repayment term for any SBA Microloan is 6 years. As mentioned earlier, the maximum loan amount that can be obtained through this program is $50,000, although the average loan given is less than half this amount.

A down payment is not always necessary for obtaining an SBA Microloan. For startup micro-funding, an average of 20% of the project will be required as a down payment. Business acquisitions may require 10% down payment. However, in many cases, 100% financing is available with no required down payment from the borrower, assuming that all other conditions are met.

How To Apply For SBA Microloans

Before getting into the specifics of the application process, it’s important to remember that the entire process for receiving funding through the SBA Microloan program generally takes between 30 to 90 days. To avoid potential delays, it’s important to gather all the information you’ll need to submit ahead of time.

To begin the application process, the first step is to find an SBA microloan intermediary that lends in your area.  To do this, you can get referrals from any financial institution where you have an established relationship. You can also use the Small Business Administration’s Lender Match tool, which can help you find lenders for Microloans and other SBA loan products.

Some nonprofit intermediaries will allow you to apply online, but most will require you to appear in person or speak to a lending specialist over the phone. While the lender you work with will provide you with the details of their requirements and all documents needed for processing, there are a few items you can prepare in advance, including:

  • Minimum of two years of business and personal income tax returns
  • Balance sheets
  • Profit and loss statements
  • Personal financial statements
  • Personal credit report
  • Business plan and financial projections
  • Business licenses and permits

Please note that this is not a comprehensive list and because there are no set requirements by the SBA for microloans, necessary documentation will vary by lender.

Once you have gathered all the information required by the lender, your application will be complete. As previously noted, the entire application and funding process generally takes between 30 to 90 days, although some loans may be processed, approved and funded within two to three weeks depending on the lender. Some lenders may require classes, workshops, or other training as part of the application process. Others offer these programs but may not require them to disperse funding. This training offers great opportunities for startups and small businesses and should be taken advantage of whenever possible.

Is An SBA Microloan The Right Choice For Me?

While an SBA Microloan offers a great funding opportunity for many small businesses and startups, it may not always be the right choice for your particular situation. If you’re looking for more than $50,000 in funding or need faster funding, an SBA Microloan may not be the best choice for you.

Some other options to consider include:

Business Credit Cards

If you want more flexibility with your funds, a business credit card may be a more attractive option. Business credit cards can be spent any way you want without the limitations you may encounter with an SBA Microloans. Business credit cards are quickly obtainable and can be put into use immediately, making them an ideal choice for those who need funding fast. Many credit cards offer high credit limits close to or even exceeding the $50,000 limit of SBA Microloans.

It’s important if you go this route to shop around for the best rates. Some business credit cards offer 0% introductory APRs followed by interest rates that are similar to SBA Microloan rates. Some cards also offer extra benefits to the borrower—think airline miles, cash bonuses, and other perks just for using the card.

Equipment Financing

If you need to purchase equipment for your business, equipment financing may be an option. Equipment financing typically doesn’t have as many stringent requirements as obtaining an SBA loan, and funding can be acquired much faster. This can be a great option for someone who needs equipment immediately or who may not have the credit score or other requirements needed for the SBA Microloan program.

If you decide to get financing for equipment, you have two options: equipment loans and equipment leases. Equipment loans typically require a higher payment, but when the load is paid off, you own the equipment free and clear. With leases, monthly payments may be lower, but you’re only borrowing the equipment. If what you are purchasing is something that is needed for your business at all times, a loan may be the better option.

Peer-To-Peer Lending

If you have a decent credit score and you want to receive funding fast, peer-to-peer lending is an option you can explore. The typical credit score requirement for this type of loan is 670, but will vary by lender. With this option, you can receive comparable interest rates and payment terms to SBA Microloans without having to wait weeks for the approval and release of funding. There are no limitations on how peer-to-peer loan funds are used.

Invoice Factoring

If you have unpaid invoices that are affecting your cash flow, invoice factoring is something you may consider. With invoice factoring, you work with a lender who pays money on your unpaid invoices in exchange for a fee, which varies by lender. This immediately gives you the capital you need for any business expense without having to wait for payment on outstanding invoices. There are typically very few requirements for this type of loan, making it an appealing option for anyone with fair or poor credit. Usually, a business must be in operation for at least three months to qualify for this type of loan. Once the money is received, it can be used for any purpose with no limitations.

If you’re still unsure of which business loan is right for you, do some research online before signing on the dotted line. You can compare the different types of small business loans to find out which offer the terms, rates, and other details that will best benefit you and your small business.

Final Thoughts on SBA Microloans

SBA Microloans can provide startups and small businesses with the capital they need to further grow their business. The low-interest rates and repayment terms up to 6 years make it an appealing funding option for the business that doesn’t want to take on piles of debt. With the right paperwork, a decent credit score, and a solid business plan in place, many businesses won’t have any problem obtaining competitive financing through this program.

The post SBA Microloans: A Comprehensive Guide To Terms, Rates, And Eligibility appeared first on Merchant Maverick.

“”