Your credit score is an important factor when considering whether you qualify for certain types of business loans. Some lenders may ask to see your business credit score along with your personal credit score.
Your personal credit score ranges from 300 to 850. The higher it is, the better your chances are of qualifying and receiving a competitive interest rate on your loan.
Your business credit score ranges from 0 – 100, and it is based on trade credit, which is when a supplier allows you to buy something upfront and pay for it later. You can check your business credit score with sites like Experian or Nav.
It’s important to know what your score is and verify that all the information on your credit report is accurate before you consider applying for a business loan.
Each lender’s requirements may vary for business loans, so you want to make sure you take the time to understand the qualifications.
Some more traditional lenders, like banks, may require you to be in business for some time or produce a specific amount of revenue to qualify.
Other options allow you to borrow with a short-term loan based on how many outstanding invoices you have.
Bryan Doxford is Chief Lending Officer at Excelsior Growth Fund (EGF), a New York state non-profit lender offering online business loans. He says that a business owner should have a strong business plan and a proven ability to repay business debts.
“To apply for a loan, each small business needs to have their financials in order, which typically includes showing proof of income along with your business and personal tax returns,” Doxford adds.
Before you apply for a loan, you want to understand each lender’s requirements for your:
Business status (how long do you have to be in business to get a loan?)
Credit score (will you also have to provide a business credit score?)
Annual revenue and cash flow
Personal and business bank statements
Articles of incorporation
Collateral (are you required to put any assets up for collateral to secure the loan?)
Some lenders may require a business plan, especially if you are just starting out, so that they can learn more about your business and why you need a loan.
“One of the key ways that a small business owner can demonstrate to their lender that they’re a good risk is by having a plan,” Doxford says. “Lenders need to understand where you’ve been, what your current need is, and where you’re going.”
Where to find a loan
Traditional banks may be your first stop when it comes to finding a lender for your business loan, but many of them have stiff requirements.
As an alternative, you can try obtaining a business credit card or working with an online lender. Doxford says his company doesn’t solely focus on credit when considering applicants.
“While credit is important, so is a proven track record. So, I look carefully at the business plan to make sure they have sized the market properly and have realistic revenue projections to ensure they can pay back the loan,” he said.
If you’re looking for an online business loan with no credit check, check out Fundbox or PayPal Working Capital, both of which are funded based on your unpaid invoices.
The U.S. Small Business Administration (SBA) offers small business loans from $500 to $5.5 million, but SBA lenders typically provide secured business loans that require collateral.
Collateral is an asset — such as equipment, real estate, or inventory — that can be seized by the lender if you are unable to make payments on your loan.
Unsecured loans don’t require collateral but rely more heavily on your credit rating. If you have bad credit, you can try options like crowdfunding, peer lending, microloans, or even grants.
Start your search
It’s best to compare traditional and non-traditional lenders and their requirements to ensure you’re making the right decision.
When Edward Sullivan founded Aria Systems, a cloud-based subscription billing company, he raised $100 million with venture capital firms (VC) during several rounds.
Sullivan is based in Philadelphia. As the company quickly grew, his VC funders encouraged him to open an office in San Francisco, which he did. After his second round of venture capital funding, the company began to grow even more quickly, and this growth continued at a rapid rate.
His investors wanted him to move to California to run the company. Sullivan couldn’t do that, though, because of family commitments. So, he ended up stepping down as CEO and is now on the board instead.
Fast forward to today, and has started another company called Trust Exchange. This time around, he’s funding the company differently. So far, Trust Exchange, a B2B social network that allows businesses to exchange information directly, has raised $1.5 million through Angel Funding.
Venture capital funding worked well with Aria Systems, which remains a successful company, but it had some pitfalls for Sullivan, who would’ve like to stay on as CEO.
What is venture capital?
Venture capital, or VC, is a type of financing provided by VC firms to early-stage businesses with a potential for high growth.
High growth is the key phrase for VC investors. They want to invest a large amount, see rapid growth, then sell the company and make money. For VC investors, an 8 million dollar company, or even a 20 million dollar company, isn’t worth their time.
Sullivan says you need to know how much you’ll be able to sell your business for. “If you think you can be a billion-dollar business, then definitely go with venture capital firms. If the max is $100 million, or less than a billion, you might want another option.”
Compare the pros and cons to make a better decision.
Business growth and sustainability
No debt or monthly payments
Experienced professionals to help grow your business
Free media coverage
VC firm will take a seat on your company’s board of directors
Might have to partner with someone they choose for you
VC money comes with expectations
Some business owners lose the joy of owning their own business
As a JD and MBA, Jeff White has spent the majority of his career either operating small businesses or helping them through M&A transactions.
White says, “Like any type of financing, there are plenty of pros and cons to taking the money from a VC firm.” White took a thorough dive into the pros and cons of VC funding and shared his insights with us.
Here are the four main pros and cons you need to know before deciding whether or not VC financing is right for you:
1) Business growth and sustainability
With a VC firm, you’ll get the money you need to grow and sustain your business. White says, “Most businesses fail or run out of money before they’re able to realize their potential.”
He adds, “With the online boom of businesses over the last 15 years, VC firms have played an instrumental role in helping businesses stay in business and get the time they need to fully develop their product and service. VC firms have saved many businesses that we all enjoy today.”
2) No debt or monthly payments
The money you receive from venture captial firms isn’t a loan, so there’s no debt and no monthly payments.
3) Experienced professionals to help grow your business
Venture capital firms typically have experienced professionals that can have a huge impact in helping your business realize its full potential.
4) Free media coverage
When you get money from VC firms, you typically get a lot of free media coverage. White says, “This helps your business grow organically and get recognized by a lot of potential customers, which could have otherwise taken you years to reach.”
1) Venture capital firms will take a seat on your company’s board of directors
White says, “They’ll likely want to be heavily involved in the decision making process of your business, and may not allow you the time you want to spend on your product.
They need to see a return on their money, and can start making your dream feel more like the job you might have already left. Some owners lose control entirely when they take out VC money.”
2) Might have to partner with someone they choose for you
VC firms might want you to bring on another partner of their choosing to run the business.
3) VC money comes with expectations
White says, “Since you’re now under a microscope, your business will be expected to grow and start turning a profit a lot quicker than you might have expected it to.”
4) Some business owners lose the joy of owning their own business
Sometimes the stress of dealing with a VC firm can be too much, White says. This can take the excitement out of being a business owner.
Sullivan adds that the rapid growth and monetary expectations can be a big problem depending on your company’s situation. He explains, “One of the challenges of VC is to grow in a very specific period, or fail. You can’t really grow organically. They have a fund and you have to return the money within a certain period of time.”
In fact, Sullivan says VC investors want you to fail fast if it’s going to happen. “They would rather have you fail fast than five years from now.”
Alternatives to Venture Capital Firms
Sullivan says it can be hard for startups to get a business loan since you need to show existing revenue or assets. He adds, “If you’re an entrepreneur, they’ll want you to put your personal assets on the line. I need $4 million, and my house isn’t that big,” he laughs.
Sullivan is considering an ICO in addition to his angel investments. Think of an ICO as a kickstarter or crowdfunding campaign, using Bitcoin or other cryptocurrencies instead of traditional funds. There are dangers to this method, which is fairly new, but also huge potential.
In addition to seeking funds from venture capital firms and Angel investors, expand your research to increase the odds of successfully financing your startup.
Finding out what you qualify for is a good place to start. By doing so, you’ll know which direction to go in to find your best option. It’s a simple, quick process and it won’t hurt your credit score.
Then, head over to SuperMoney’s business loan page where you’ll find detailed reviews on top lenders, including real-user ratings, all in one place. Compare them side-by-side before making your final decision.
If you’ve thought about running your own restaurant, but the cost was prohibitive, consider starting a food truck business. For a fraction of the cost of a full-fledged restaurant, you can become the proud owner of a mobile eatery.
The food service industry generates $870 million a year
According to market research company IBISWorld, the Food Trucks industry is growing by 7.9% each year. Food trucks are one of the best-performing segments of the foodservice industry. They earn $870 million a year in the U.S.
Wondering how to start a mobile food business? Here are six basic steps and requirements for joining the brigade of roaming chefs.
1) Develop a strategic food truck plan
The goal of any business is to create repeat customers and promote business growth. To successfully do that as a food truck owner, you have to be strategic and inventive. You have limited space, countless competitors, and customers with high expectations. So you have to create an action plan that accommodates all of those things.
Decide what to serve
While the sky is nearly the limit when it comes to what you can serve from a food truck, you do have limited space. That means you need to decide on a specific culinary theme and stick to it.
Do you want to serve burgers, fries, and hot dogs? Or do you have something more sophisticated in mind, like healthy fast food or a spin on an old concept?
I see a lot of food trucks serving the same foods, but it’s much more effective to come up with a unique concept. When we started our business in 2006, there were no other food trucks selling funnel cakes in Las Vegas.”
Know your competitors and be unique
Denette Braud, the owner of Braud’s Funnel Cake Café, suggests considering your competitors. She says, “I see a lot of food trucks serving the same foods, but it’s much more effective to come up with a unique concept. When we started our business in 2006, there were no other food trucks selling funnel cakes in Las Vegas.”
Customize your product
Beyond coming up with a unique concept, Braud also advises customizing your product as much as possible. For example, she says, “Funnel cakes have been around forever. We made our product unique by featuring 17 different toppings. People come from all over the world for our funnel cakes.”
Braud’s concept worked so well that she was able to open a brick-and-mortar store in the Las Vegas Town Square mall in September 2017. She also still runs the food truck.
Create a menu
One of the best parts about eating at a food truck is the convenience and speed. Focus on items that are fast and easy to prepare. While you do want to offer choices, limit the menu to items that feature similar base ingredients. That will make food prep and storage fairly uncomplicated.
Decide your location
Are you going to travel the country in your food truck, or are you going to stay local? Perhaps you’ll decide you want to dominate your local market before taking it coast to coast.
This is an important decision to make during the planning phase, as it will not only determine what you choose to serve but also how you go about marketing your food truck.
Beyond that, make sure you know the “hot spots” and the best times to park your mobile restaurant in every city you go to. For example, if you’re in a bigger city, park near office buildings during lunchtime Monday through Friday, and then park outside of bars late at night on Friday and Saturday’s.
Every city and town is different, and it’s up to you to discover where and when it’s the most profitable time to get cooking.
2) Buy a food truck
Your biggest startup expense will be the food truck itself. You have the option to buy a new or used food truck.
New truck vs. trailer
A new food truck is the most expensive option. Such a vehicle could cost you anywhere from $50,000 for a basic model to more than $200,000 for a customized mobile kitchen. A less expensive option is a food trailer. These will generally run from $10,000 to $30,000. If you buy a trailer, you’ll need a truck to transport it.
Braud opted for a food trailer. She says, “I decided on a trailer because I’ve seen many owners experience breakdowns with their food trucks. With a trailer, you hook up your truck and go.”
Make your truck stand out
Advertise your food truck and make it look like an appetizing place to dine by painting it or getting a vinyl food truck wrap. Wraps feature your company name and logo.
If your budget is tight initially, just put out a banner and flag featuring your company name.”
Food truck wraps typically start at $1,000. Says Braud, “If your budget is tight initially, just put out a banner and flag featuring your company name.”
Be careful buying out-of-state trucks
While it’s possible to find good deals on used food trucks, Braud cautions potential owners to be careful if they buy a truck out of state. She says, “I know someone who had to spend a lot of money having a truck retrofitted for his state to meet health department requirements.”
Take over an existing food truck business
Another option is to find a food truck business for sale. You would buy out the existing owner and take over the business.
3) Get required food truck licenses and permits
Like any restaurant, food trucks require a variety of licenses and permits to operate. Knowing what licenses are needed to run a food truck is important, as is familiarizing yourself with what kind of permits you need for a food truck.
What licenses and permits are required?
Deborah Sweeney is CEO of MyCorporation.com, which offers online legal filing services for entrepreneurs and businesses. She notes the variety of permits required for a food truck.
Most food trucks require a business license, health permit, mobile food facility permit, food handler permit, and food safety certification.”
“Depending on the city or county you conduct business from, you’ll need to check in with your local Chamber of Commerce or the Small Business Association to determine required licensing. Most food trucks require a business license, health permit, mobile food facility permit, food handler permit, and food safety certification,” says Sweeney.
Braud pays for an annual health permit from the state of Nevada. With licensing, she pays for the state, county, and city licenses. She says, “Licensing requirements vary widely. I suggest looking into licensing when you’re deciding on where you want to sell. If you move around, you may need licenses for each spot.”
Laws and regulations
There are also different laws and regulations in each city. For instance, many cities have certain areas where food trucks aren’t allowed. Some cities have food truck associations that you’ll be required to join if you wish to operate there.
4) Do you need a food commissary to run your food truck?
Many cities and county health departments require that food truck businesses use a food commissary. These are established commercial kitchens where food truck owners store and prepare food.
Costs for food commissaries can run between $400 to $800 per month. In some instances, you can store your truck at the food commissary.
If your business needs to cover a shortfall now, your options are limited. It would be unwise to reach out to vendors and demand that payments come sooner, and you’ve probably poured in enough of your cash to keep things going.
Small business loans can take a while to process, but a business loan from Rapid Advance can provide funding within three days. Read on to learn if Rapid Advance is right for you.
About Rapid Advance
Based in Bethesda, Maryland, Rapid Advance was founded in 2005. Since then, the lender has disbursed over $1 billion in financing to more than 30,000 business owners nationwide.
Rapid Advance also offers merchant cash advances, lines of credit, and SBA bridge loans, which can keep you afloat while you’re in the process of applying for a loan from the U.S. Small Business Administration.
Working capital loans to help keep operations going while you’re increasing your revenue.
Equipment loans to help you get the necessary equipment to run your business.
Professional practice loans to help providers in certain industries, including legal, accounting, insurance, and healthcare.
Regardless of which loan you need, you can borrow between $5,000 and $500,000. But don’t get too carried away; you have only up to 18 months to pay that money back.
“Rapid Advance was fast when it came to approving and funding my loan,” says Carlos Ruiz, a general contractor in Louisiana. “They were great through the whole process, and were quick to answer all my questions.”
Rapid advance interest rates and fees
The lender doesn’t provide any upfront information about what to expect regarding interest rates. Instead, Rapid Advance simply explains what goes into their decision, including the size of your business and the industry you’re in. Your business’ financials will also likely be scrutinized during the underwriting process of your loan application.
Because Rapid Advance offers small business loans to borrowers with bad credit, however, you might expect higher interest rates than what you’d find with a typical small business loan. See our review page for up-to-date interest rate information.
The lender doesn’t mention any fees on its website, so be sure to ask about them before you apply.
Rapid Advance eligibility requirements
Getting a small business loan anywhere can be impossible if your credit is bad. But with Rapid Advance, there’s no minimum requirement.
That said, the lender does require that your monthly revenue to be $5,000 or more. Plus, you have to have been in business for at least two years to get a loan.
If you have any questions about Rapid Advance business loans, either now or after you’ve been approved, you can reach out to the lender’s customer service team at 866-224-1162 Monday through Friday, 9:00 a.m. to 6:00 p.m. Eastern time. Alternatively, you can email their team at email@example.com.
If you’re interested in taking out a small business loan through Rapid Advance, start by visiting our review page of the lender. Click to visit the lender’s website then click “Request a Free Quote.”
Note that you’ll need the following to go through the application process:
A government-issued photo ID.
A voided check from your business account.
The last three monthly statements from your business checking account.
Once you click to get a free quote, you’ll be asked to prove your name, phone number, and business name.
Next, you’ll enter your business zip code, how long you’ve been in business, your estimated total monthly sales, and email address.
You’ll receive an estimated loan amount based on the information you shared. You’ll also be asked to confirm your business based on their database.
From here, you’ll provide more information about your business, including where it’s located, contact information, business structure, and the industry.
Next, you’ll share some more information about your business’ finances, including confirming your monthly sales and whether you accept credit cards. You’ll also enter how much you’re applying for, when you need the money, and how you plan to use it.
You’ll then fill out some information about you as the business owner. For example, your address, date of birth, and Social Security Number.
Once you finish, you’ll get a decision as to whether you’re pre-qualified. From here, you’ll create an account with Rapid Advance and provide the required documentation to finish your loan.
Should you get a Rapid Advance business loan?
Rapid Advance business loans are only for people who either need cash fast and have no other options or have bad enough credit that they don’t qualify for a typical small business loan. The lender’s great customer reviews show that it’s a good option if you fall under one of these two groups.
“That was the biggest thing for me,” says Ruiz. “I spent a few hours shopping around before I settled on Rapid Advance. It probably saved me hundreds of dollars on interest.”
That doesn’t necessarily mean that Rapid Advance offers the lowest interest rate for everyone. Remember that there are several factors that go into determining your interest rate. So do your due diligence and get the best offer for your needs.
If you want to start a cannabis business, you may find that getting startup funds isn’t easy. Marijuana production and selling are legal in some states, but illegal at the federal level. That means most traditional banks won’t provide funding. Read on to find out how to get funding for a marijuana business.
Amount earned by U.S. and Canadian businesses last year
But it could pay big to figure out how to fund a cannabis business. A study by Arcview Market Research found that marijuana sales in North America grew by 30% in 2016.
Options for funding a cannabis business are limited, but solutions and creative financing workarounds do exist.”
As the legal market expanded in the U.S. and Canada, cannabis businesses earned $6.7 billion last year.
According to Michael Hawkins, CFO of the Medical Cannabis Innovations Group (mCig), “Options for funding a cannabis business are limited, but solutions and creative financing workarounds do exist.” mCig is a publicly traded provider of cannabis products and grower services, including merchant services.
Says Hawkins, “When the cannabis market becomes mainstream, banks will eventually begin supporting the industry. When that happens, cannabis companies that managed to grow through these strict financing times will be ripe for acquisition—at great gains.”
Cannabis business funding options
Whether you’re a grower/supplier or seller, you need startup funds for a cannabis business. Here are four funding options.
A HEL is a second loan on your home. This is in addition to the original mortgage and is usually smaller than the original loan with a higher interest rate. You receive the HEL loan as a lump-sum that you can use to open a cannabis business. Such loans usually have a fixed rate. You pay them off over a set period of time.
HELOC – Home Equity Line of Credit
A HELOC is a line of credit. You can take out as much as you need up to the credit limit. You only pay interest on what you’ve taken out. This makes it a flexible financing option for a marijuana business. HELOCs have variable interest rates, so payment amounts fluctuate.
You can only get a HEL or HELOC if you have sufficient equity in your home. If you owe more than the home is worth, you aren’t eligible.
WEIGH THE PROS AND CONS
Compare the pros and cons to make a better decision.
Easy to qualify if you have sufficient equity
No restrictions on how you use the money
Low interest rate
Interest paid could be tax deductible
Fail to pay the loan and you risk losing your home
No funding if you don’t have sufficient equity
There are variable interest rates for most HELOCs
You may need to pay for a home appraisal
2. Use credit cards
Think you can get your cannabis business off the ground quickly and start turning a profit?
You might consider financing the venture with a credit card featuring a 0% introductory rate. Most of these cards won’t charge you interest for 6 to 24 months. Two years could be sufficient time to build a thriving business.
In order to get a 0% introductory rate credit card, you need good credit (700+). How much credit you receive will also depend on your credit rating and the amount of other debt you have.
Keep in mind that, once the introductory rate is over, if you still have a balance, you could pay double-digit interest rates.
WEIGH THE PROS AND CONS
Compare the pros and cons to make a better decision.
Once you get approved, you can fund your cannabis business immediately
Pay off the 0% introductory rate card in time, and you build your business expense-free
Fail to pay off the 0% card in time, and you’ll pay high interest
You may not qualify for a 0% credit card if you have a low credit score (under 700)
3. Try an online business loan
Consider applying for a business loan to start a cannabis company. Choose from a wide variety of online business loan options. Many have easier lending standards than traditional banks.
Because of state law variations regarding cannabis, some online business loan companies may not fund.
Online business loans feature a streamlined application process. Some online lenders offer low interest rates, while others have high interest rates. Compare rates and terms carefully before borrowing.
WEIGH THE PROS AND CONS
Compare the pros and cons to make a better decision.
Streamlined application process
Low interest rates available
High approval rates
High interest rates with some lenders
May not provide a loan, due to legalities regarding cannabis
4. Opt for a personal loan
Personal loans are commonly used to finance business ventures. Some personal loan lenders have no stipulations on what you use the money for. Other companies don’t allow the funds to be used for business purposes.
The personal loan application process is a simple one. If you have good credit (700+), low interest rates are often available. Some lenders charge high rates, so make sure to shop around.
WEIGH THE PROS AND CONS
Compare the pros and cons to make a better decision.
Streamlined application process
Low interest rates available
High approval rates
High interest rates with some lenders
Some personal loan lenders don’t allow you to use funds for business purposes
Additional cannabis business financing tips
Lenders will look more favorably on lending to you if your venture is set up as a legitimate business.
Consult with an accountant regarding incorporating or forming a limited liability corporation (LLC). Get a business banking account with a business name.
Keep detailed accounting records. Many lenders will want to see that your venture has operated for at least six months. They will likely request monthly gross sales figures.
Small and Medium Enterprise (SME) lender, Kabbage, has just received a $250 million investment from Japan-based SoftBank. Kabbage provides loans to SMEs based on customized credit reports using a unique combination of data and analytics. It has provided more than $3 billion in funding to over 100,000 small and medium-sized businesses.
Kabbage’s risk model and funding process
Kabbage pulls credit information from a variety of sources including social media profiles, tax filings, and other company details. This method differs drastically from traditional lending methods that base lending almost entirely on strong credit scores.
Kabbage also has an edge on loan processing times, when compared to traditional business lenders. The average Kabbage application takes approximately ten minutes to process. Compare that to the weeks and months traditional lenders can take to reach an investment decision. Traditional lenders also tend to stall on small and medium companies after a credit crunch, but cash flow funding is what feeds small business expansion. Since the company’s inception in 2009, Kabbage has raised more than $500 million in equity funding and continues to grow.
Kabbage seems like a natural fit for SoftBank’s Vision Fund, which focuses on companies immersed in technology. While this investment came straight from SoftBank and not through Vision Fund, the Kabbage business model fits SoftBank’s pattern of previous investments. Kabbage joins Softbank’s diverse investment portfolio including hugely popular team-building platform Slack (valued at more than $5 billion following a $250 million injection from Softbank) and co-working space company WeWork (a $4.4 billion investment).
Kabbage will use the funds to develop key analytics and expand into new — possibly Asian — markets. There are other lenders in the SME space (including Amazon and PayPal), but Kabbage was among the first to use data and analytics to accelerate the credit approval process. Click here to learn more about Kabbage’s credit approval process and company business model.
A weak business performance was another issue that caused 31% companies to get denied. It’s important that your business can prove to lenders that you are profitable and likely to repay your loan.
Lenders see signs of a weak performance in your profit and loss statements, tax returns, and other financial reports. If your business isn’t well-established, you may be able to lean on your credit history or assets instead.
3. Low credit score
A low credit score was problematic for 29% of all firms. It is not just your personal score either. In order to secure debt, 13% of all firms relied on their business credit score, 42% relied on the owner’s personal credit score, and 45% relied on both.
If your personal or business credit score is low, you will want to work on improving it to not only to get approved but to get lower interest rates. If you can’t wait, you can look for lenders that are more lenient when it comes to creditworthiness.
4. Insufficient credit history
28% of all firms were denied due to insufficient credit history. Without much of a credit history, lenders can’t determine if you can be trusted with a loan.
Typically, they want to see both installment and revolving credit accounts, accounts with several years in length, and accounts with high loan amounts/credit limits that are managed well.
5. Too much existing debt
Too much debt is also a problem and was the reason for 28% of firms getting denied. The more debt you have, the higher the risk for lenders.
One of the top reasons business owners are declined for a loan is because they don’t have the cash flow to support operations or additional debt.”
Yahaira Núñez, Vice President of Business Development and Advisory services at Excelsior Growth Fund, says, “One of the top reasons business owners are declined for a loan is because they don’t have the cash flow to support operations or additional debt.”
To find out where you stand, look at your debt to income ratio. This can be calculated by adding up all of your business and personal debts and dividing the sum by your monthly gross income.
Multiply that by 100, and you will get a percentage. It should be below 36%.
These are the five top reasons that were found to cause a business loan to be denied. However, there are many other requirements that can hold you back. Here are the common ones you should know.
More business loan eligibility factors
Time in Business
How long has your business been in operation? Most lenders look for established businesses that have been in operation for at least one or two years.
Some loans will require that you have skin in the game. In other words, some lenders want to know what you have invested from your own assets toward the company.
The amount of experience you have in your industry can play a role, as more expertise increases the odds of you being successful in your endeavor.
Applicants need to ensure they apply with a lender that serves their area.
Most lenders will check the amount you make per year.
Income over the previous 90 days
In addition to annual revenue, some lenders will look at income over the past three months. This gives a recent snapshot of the business’s health and performance.
The industry you operate in is another concern. Some lenders limit which industries they will lend to, so be sure to check. For example, OnDeck won’t lend to financial service and investment companies, funeral services, mining companies, and several others.
Purpose of loan
The purpose of the loan may also be of concern to the lender. Many will ask what the funds will be used for and will decide if they want to approve the loan for that reason.
The most helpful piece of advice I got, and what helped my business close a $200k line of credit, was to only talk to potential lenders about what we were going to continue doing (that had worked in the past) and how the debt would be used for those things.”
Matt Fiedler, Cofounder and CEO of VinylMe Please, says, “The most helpful piece of advice I got, and what helped my business close a $200k line of credit, was to only talk to potential lenders about what we were going to continue doing (that had worked in the past) and how the debt would be used for those things.”
He adds, “It’s an easier conversation than trying to sell the long-term vision and potential of your company, which may be different than who/where/what you are today.
Debtors have a low-risk tolerance, and they don’t necessarily want to fund uncertainty or change. They want to know what is working and know that their money is going to fund those things. ”
Some lenders will want to see your business plan, complete with financial projections, profit and loss statements, a balance sheet, and cash flow.
Bryan Doxford, Chief Lending Officer at Excelsior Growth Fund, says “Qualifying for a loan varies lender to lender, but in general, a business owner should have a strong business plan and a proven ability to repay business debts.”
Business financial statements
If your business has more than one owner with at least a 20% stake in the company, many lenders will require signed financial statements.
Lenders may also want you to submit your legal documents, such as your articles of incorporation, franchise agreements, business licenses, business registrations, commercial leases, etc.
Companies will vary in their requirements, so you will want to check with the specific one you are interested in before applying to ensure you are eligible. If you aren’t, you can take note of the things you need to do and make a plan to become eligible in the future.
FAQ quick guide: How to get approved for a business loan
Here are a few business loan topics people commonly ask about.
How to get a startup business loan
SBA loans are a good option to look into as they will extend loans to start-ups. Online lenders often require one to two years in business.
How to get a business loan to buy an existing business
SBA loans can be used for the acquisition of a business. Additionally, loans from credit unions and banks may work. Beyond that, you will likely have to look into other forms of financing such as a home equity loan, personal loan, or seller-financing.
Insufficient collateral is a top reason business loans are denied. However, there are lenders that will approve loans based on a personal guarantee. You will likely have to have a strong credit profile, business history, etc.
Browse unsecured business loans by clicking here and checking the box in the left-hand menu for “Unsecured term loans.”
How to get a small business loan with bad credit and no collateral
Here is where it gets tricky. Unsecured business loans will rely on your credit to secure a loan, so your choices will be limited if your credit is poor. However, you may still be able to get approved.
OnDeck has a minimum personal credit score requirement of 500 and offers unsecured loans. You will need at least $100,000 in annual revenue and one year in business.
If your business income runs through PayPal, you may qualify for an unsecured working capital loan which doesn’t even require a credit check. So there are options, although your cost to borrow will be higher.
How to get a small business grant
A grant is an amount of money you are awarded that you don’t have to pay back. They are offered by the federal, state and regional governments, corporations, and other organizations. You will need to find grants you qualify for, apply, and cross your fingers that you are chosen.
A range of opportunities exists for business owners looking to get funding. From large banks to small credit unions and unsecured loans to government-backed ones, there are plenty of options.
The bottom line is that you need to find the best fit for your situation. The better your credit and more established your business, the easier it will be. However, don’t lose hope if you are just trying to start up or have bad credit. You may still be able to find a solution, or at least figure out what you need to do to get approved in the future.
To compare business loan companies now, click here. You’ll be able to filter the results by your credit score, company type, business revenue, years in business, and more.
Additionally, you can read real user ratings from business owners who have borrowed from the companies in the past. We’ll help you identify your options and find the best fit for your budding business.
When you’re trying to get your business off the ground, the most important thing to make sure is that there’s enough funding to keep the lights on. According to a survey from The Federal Reserve, small businesses are more concerned with cash flow than any other concerns such as business costs or government regulations (Source). The good news is that there are a wide array of financing options out there, from traditional banks to online lenders to the government. But not all of the options are right for every business. Find out which are the top factors influencing business loan decisions and how it affects you.
What type of business goes to what type of lender?
Small and large banks, online lenders, microlenders and the US government are some places that offer business loans. Banks are the traditional lenders and require good credit and collateral to secure loans. They generally charge lower interest. Still, banks may not be the best option for some, particularly those with bad credit.
Small business, including microbusinesses that make less than $100,000 and startups, are more likely to apply for government-backed loans or lines of credit compared to more established firms with higher revenue. Over half of microbusinesses and startups (63% and 58%, respectively) applied for business loans in 2015. In comparison, less than half of growing businesses (49%) did.
It’s the reverse when we look at traditional lines of credit. More than half (60%) of growing companies applied for lines of credit while 53% of 47% of startups and microbusinesses, respectively, did.
Why do smaller companies favor business and SBA loans?
Traditional banks may not be the best place to start looking for a line of credit if you’re just getting started with your business. They require lots of documents detailing the scope of the businesses and proof that your business can be profitable in the future, as well as collateral. In fact, the majority of firms (52%) applied for loans at small banks. Large banks were a close second. Only 20% applied for an online loan, in 2015.
Source: New York Fed – 2015 Small Business Credit Survey
Online lenders are a good option if you need funding fast. They can provide a larger loan amount and don’t require collateral but may charge higher interest rates. The application and approval process can take as little as 10 minutes. Many online lenders also have an automated underwriting program. That means it’s possible to get smaller loans than a bank would typically give. (See some here: https://www.supermoney.com/reviews/business-loan#article)
Government loans are offered through the US Small Business Administration (Source). They are a favorite of smaller firms because they extend loans to those who might otherwise not qualify for loans, and help out the disadvantaged including women, veterans and the disabled. The SBA offers general loans, short-term loans and disaster loans, among others. The interest rates and repayment terms are favorable. However, because of the benefits, the application process to secure one of these loans can be time-consuming.
Microlenders are another loan option to some firms. These are nonprofits that lend short-term loans less than $35,000. The interest charged on these loans are typically higher and the loan amounts are smaller. They could be good if your business needs a jump start of cash to get sales growing quickly.
Why businesses pick a specific lender
The two most important factors influencing a borrower’s decision to go with a lender are the relationship with the lender and the price of credit.
For microbusinesses, the top concern is –unsurprisingly– whether they think they can get a loan or not from the lender. That’s because, as young companies, they’re perceived to be most risky and not everywhere will lend to them. That’s another reason why they prefer things like SBA loans. The second-most important concern for microbusinesses is the price of the loan.
Source: New York Fed – 2015 Small Business Credit Survey
Slightly bigger businesses also prioritize the price of credit, but they also take into account the relationship they have with the lender. Relationships become even more important as the business grows. For companies that make more than $1 million, they say that relationships are the top factor in whether they decide to go with a loan (while price of credit is secondary).
It’s easiest to build these types of relationships in places where people are tightly knit to begin with. And that means mostly small, rural towns”
Why are relationships so important? Lenders are paid back more frequently because they know the borrower, and thus are more willing to lend. They may also be more willing to lend because they know things about the borrower the bank does not, like their personal details. Small business loans are widespread in rural areas, where there are tighter knit communities and people tend to know other people.
“It’s easiest to build these types of relationships in places where people are tightly knit to begin with. And that means mostly small, rural towns,” said Robert DeYoung, Capitol Federal Distinguished Professor in Financial Markets and Institutions at the University of Kansas School of Business (source).
When considering a business loan, you’ll want to look at the annual percentage rate and the terms of the loan. Shop around and look at a few that you qualify for. After you determine which ones you qualify for, you want the one that offers the lowest APR. That will make it easier for you to pay back your debts.
Which Lender is Right for You?
The process of researching and deciding on a business loan can be frustrating. Ultimately, the choice boils down to what amount of risk works best for you. As you first start out, you may look at the feasibility of securing loans and apply to places that are more lax with their lending restrictions. You may have to pay more for credit. But as you build up your credit score and sales, you will be more able to go to banks and other lenders that may offer credit more cheaply.
At the end of the day, having knowledge about the different business lenders out there will allow you to make a more informed, power decision for the future of your business.
Compare dozens of business loan providers and filter them by the features that matter the most to you with SuperMoney’s business loan review page. You can also read what other lenders have to say about each lender before you commit to a loan contract.
During growth phases, many businesses experience capital shortfalls due to unforeseen operating expenses, uneven cash flow cycles, inventory shortfalls, or when an unexpected opportunity arises. In many cases, the need for a cash infusion is only temporary, so it may not make sense to seek long-term financing with a loan. Instead, the business’ specific cash needs may best be served with a line of credit. However, business lines of credit come with certain tax implications that should be fully understood to optimize its benefits while avoiding possible IRS traps.
What exactly is a business line of credit?
A business line of credit works much the same way as a revolving credit card account. Upon qualification, the bank or online lender issues your small business a certain amount of credit that is available for your use as the need arises. You only pay interest on the amount you actually borrow, so you can better control your interest expense. With most lines of credit, you are only required to make interest payments, so, conceivably, it can be easier on your overall business cash flow.
However, the principal will eventually have to be repaid, so it may be better to build that into your cash flow expense as well. When you repay the principal, those funds can be used again when needed. Business lines of credit are ideal for covering short-term working capital needs and smoothing out cash flow during slow months.
Although the interest rate on a line of credit is typically lower than the average credit card, the actual rate charged depends on your credit rating. For a business line of credit, banks not only consider your business and personal credit rating, they factor in your business revenues, the health of your business, as well as the general trend in the market. The bank will use those factors to determine both the amount of credit it will extend and the amount of interest it will charge. If you choose to go with a platform lender, the basis of determining how much financing you’re eligible for will be more flexible as they look at sales activity as the primary criteria instead.
Let’s say you use a business line of credit to purchase new equipment for your office or construction business. The equipment purchased with cash from a line of credit may be eligible for two tax write-offs – a business deduction for the interest expense and a deduction for depreciation on the equipment. Under the bonus depreciation rules in the tax code, businesses can deduct up to 50 percent of the cost of new equipment. Together, the bonus depreciation deduction and interest expense deduction can substantially reduce your equipment costs.
Interest expense deduction
Generally, the interest charges paid on a business line of credit are considered a deductible business expense as long as it is used to pay for necessary expenses in the running of your business. Purchasing equipment, inventory, supplies or other necessary items are allowable business deductions in and of themselves, and so is the interest paid on the money that is borrowed to purchase them. However, the IRS may require an itemization of items purchased with borrowed money to justify the interest expense.
Keeping personal and business lives separate
A mistake many business owners make is to use the cash from a business line of credit to pay for personal expenses. Interest paid on a personal line of credit is not tax deductible. If it is found that even a minuscule portion of the business line of credit is used to pay for a personal expense, the IRS could reclassify it as a personal line of credit and disallow all interest charges. That is why it is important to segregate your accounts and keep detailed records of business expenditures made with the line of credit.
“Using a sales account for deposits minimizes identity theft exposure because there are no checks or cards to draw money from the account. The same protection is provided for the other accounts due to their limited purposes”
You should also consider creating separate checking accounts for different categories of funds (i.e. an account for vendors, for payroll, for deposits from revenue, for operating expenses, for travel and meals, etc.). With these accounts, you’ll be able to see how you’re doing financially throughout the month.
“For example, using a sales account for deposits minimizes identity theft exposure because there are no checks or cards to draw money from the account. The same protection is provided for the other accounts due to their limited purposes,” says Paul Spizzirri, a tax attorney.
Cash from a line of credit not counted as income
Although the cash you borrow from a line of credit adds to your working capital or cash flow, it is not counted as income for tax purposes. For reporting purposes, it may be a good idea to keep a separate account for holding borrowed money, which can also make it easier to track specific expenditures for justifying interest charges.
Every small business is different
Every small business varies, especially when it comes to taxes. Depending on the type of business you own and the state you live in, your taxes won’t be the same as everyone else’s, which means your tax implications might not include all of the above.
There are different results depending upon the character of the lender and borrower, the relationship between the parties, the legal components of debt and equity of the instrument, and the purpose of the loan”
“There are different results depending upon the character of the lender and borrower (non-profit or a c corporation, s corporation, partnership or LLC), the relationship between the parties (related party transactions may lose the interest deduction), the legal components of debt and equity of the instrument (certain preferred stock can legally be classified as debt in one jurisdiction and stock in another, so interest is a dividend in one country but interest in another and interest is deductible while dividends are not), the purpose of the loan (A CERT can trigger unintended tax costs and money borrowed to pay wages to owners is a big mistake) and much more,” says Spizzirri.
Consider hiring an accountant – either full-time or part-time – to help you set up your line of credit as well as handle your taxes. Even if you can’t hire a full-time accountant, get advice on the tax implications for your business and what they mean.
A business line of credit may be the best option for quick access to cash, but business owners should have a detailed cash flow plan in place for repaying the principal to avoid lingering interest expenses. Because a line of credit does have tax implications, business owners should consult with a tax professional to determine how it impacts their particular situation.
Constantina Kokenes is a Content Specialist at Kabbage, a small business loans provider. She holds a Master’s Degree in Journalism from Northwestern University. When not in the small business world, Constantina loves cooking, baking, going on hikes and playing with her cat and chinchilla.
When running a small business, there may be a time you wish you had more money. Even with successful sales, you may require additional cash to move forward with your plans. Whether it is a loan for rent and other bills, fixing a broken piece of equipment or starting an expansion project, your business may have needs that require additional financing. Before you receive a business loan, you’ll need to go through the process of applying. If your business is ready to apply for a loan, we’re here to help! Learn about these six common business loan application mistakes that you should never make so that you can receive a loan for your operations. Let’s get started:
1. Forget to read the lender’s requirements
Before applying, you should do research on different lenders and review their prerequisites. If you don’t meet their standards, they won’t be able to provide you with a business loan. Filling out an application for a product that you don’t qualify for will be a waste of your time. Instead, find a lender whose qualifications you meet. If you are unable to find one, consider working on raising your credit score, meeting their time-in-business requirement, or reaching whatever guidelines that you currently do not meet. Don’t lose hope – with hard work you’ll be able to get your business up to a lender’s criteria!
Filling out an application for a product that you don’t qualify for will be a waste of your time.”
2. Lie on your application
Understandably, you want additional financing for your business. Still, you need to be entirely honest on your loan application. A high-quality small business lender will fact-check your application and will be able to debunk any lies that they find. If you start off being dishonest with a lender, they will likely not be willing to work with you. Remember, they do not want to put themselves at risk by working with a business that either doesn’t fit their requirements or isn’t forthcoming about their financial situation.
Remember, they do not want to put themselves at risk by working with a business that either doesn’t fit their requirements or isn’t forthcoming about their financial situation.”
3. Forget about existing debt
Whether it is debt from a previous loan or other outstanding debt, this could affect your ability to repay a loan. Trying to pay back a lender while also satisfying your other financial obligations could present many challenges. If you have too many debts to repay, you may even have trouble running your business. Although you want additional working capital for your business, it might not be beneficial if the repayment process proves to be too strenuous. If this is the case, try to pay back your debts, and then apply for a business loan once you are in better financial standing.
If you have too many debts to repay, you may even have trouble running your business.”
To most lenders, your credit score will matter. Even if the lender claims to work with business owners with a low credit score, they’ll still need to run your credit. Before applying, you should find out your credit score so that there won’t be any surprises. If your credit score doesn’t meet the lenders’ standards, aim to raise your score. This can be done by paying bills on time, not opening too many accounts and running a responsible business.
Before applying, you should find out your credit score so that there won’t be any surprises.”
5. Being close-minded
Before applying, you may have a certain amount of money or a term length in mind. If the lender you applied to supplies you with an offer that strays from that, don’t immediately decline it. Most lenders look at many different aspects of your business to give you with the best possible offer. Even if the offer is slightly different than you had hoped, you’ll still be receiving additional financing for your business, which you likely need. If you find that you still need additional financing later, your lender may be able to provide you with a more favorable renewal offer.
If the lender you applied to supplies you with an offer that strays from that, don’t immediately decline it.”
6. Not being prompt
When going through the business loan application process, don’t be slow when interacting with the lender that you’re working with. After filling out an application, the lender may ask for additional bank account statements, proof of ownership, information on previous debt, or other documents. If you wait to send these papers in, you are ultimately pushing back the date in which you’ll receive your loan. By taking the time to compile and send in documents requested by the lender, you’re benefiting your business and its timeline for financing.
If you wait to send these papers in, you are ultimately pushing back the date in which you’ll receive your loan.”
Receiving a business loan can be an exciting step for any small business. While the process of applying for a business loan can seem daunting, it will be rewarding once you are supplied with extra financing. Now that you’ve read this post, we hope you are aware of the mistakes that could prohibit you from receiving a loan. By being diligent, honest and organized, you’ll be more likely to obtain financing that is right for your small business!
About the Author:Katie Alteri is the content marketing coordinator at Fora Financial, a company that provides working capital solutions to small businesses across the U.S. Fora Financial can also be found on Facebook and Twitter.
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