Pros & Cons Of Alternative Emergency Loans
|Some may have lower APR||Additional fees|
Most small businesses have a relationship with a bank or credit union already, so reaching out to your financial institution to discuss options is a smart first step if you are in need of a small business loan to cope with the effects of coronavirus.
Other options for emergency small business loans include popular lenders like BlueVine, Lendio, and Fundera. Be sure to carefully read all fine print and weigh multiple options before applying for an emergency small business loan to help you survive the coronavirus economic disaster.
Ondeck: Best For Loyalty Benefits
If you are looking for a lender that rewards you for your loyalty, OnDeck has benefits that can waive your interest and lower or waive the origination fee for your next OnDeck business term loan. OnDeck may even reward your prepayment with an interest waiver. With OnDeck, you can take out up to $250,000 for terms of up to 24 months. Depending on your location, you might be able to receive same-day funding on loans of up to $100,000 if you complete the checkout process by 10:30 a.m. Eastern time. OnDeck also offers business lines of credit of up to $100,000 for 12-month terms. The main drawbacks include state and industry restrictions, a one-year time-in-business requirement and a starting interest rate of 35%.
Time in business: One year
Revenue requirements: $100,000 annual gross revenue
Restrictions: Does not lend to businesses in Nevada, North Dakota and South Dakota. Does not serve the following industries:
- Adult entertainment/materials
- High APR
- Requires at least one year in business
- Limited in states and industries
What Affects Your Credit Score
Your credit score depends on a number factors such as the number of active accounts you have, your total debts, repayment histories, the length of your credit history, and the loans youve applied for in the past.
The Fair Isaac Corporation created the FICO score, which is the most used credit score in the United States. It is a three-digit number that summarizes your credit report, taking five elements into consideration to calculate your score.
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Why Your Credit Score Is Important For A 504 Loan
Even though there is no minimum score for a 504 loan, your Certified Development Company will be interested in your business credit score during the loan pre-qualification process. for the loan. If your credit score is not strong, you should speak openly with your CDC loan officer about it. It would be a good idea to talk about what you have done to remedy the problem and what steps you are continuing to take.
A 504 loan has three parts, one of which is a loan from a conventional lender for at least 50% of the total project cost. A lower credit score might diminish your chances of receiving a commercial loan from a bank. However, lenders who participate in the 504 loan program get an extra incentive in the form of the first lien position in the loan. This significantly decreases the banks risk, and makes it more likely they will lend to you.
A borrower with lower credit score may want to find a bank that works with a large volume of 504 loans. The top SBA lenders make hundreds of loans a year and have experience with all kinds of lending situations. Also, if you do not have a lender picked out, you can ask your CDC to help you select one. TMC Financing is happy to help match a borrower with the right bank for their small business expansion project.
Do Sba Express Loans Require Down Payment
The SBA requires borrowers to make a down payment on certain, more popular loan types. Loans in the SBA 7 programincluding Express loanscome with down payments between 10% and 30% of the total loan amount. Ultimately, the down payment amount depends on the borrowers cash flow, collateral and other financial factors.
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What Documents Do You Need For Sba Loans
Each loan program may have specific requirements, but these are the most common documents required for 7 loans, and many will apply to other SBA loans as well.
Business Financial Statements may be required including:
- Year End Profit and Loss statement for the last three years
- Year End Balance Sheet for the last three years, including a detailed debt schedule
- Reconciliation of Net Worth
- Interim Balance Sheet
- Interim Profit & Loss Statements
- Projected Financial Statements that include month to month cash flow projections, for at least a one-year period.
Other documents that may be required include:
- Business tax returns for the last three years
- Articles of incorporation
- Business lease
How Can You Improve Your Business Credit Scores
If your credit scores are too low to qualify for the financing you want, there are steps you can take to improve your credit scores.
- Monitor: Take a look at your credit scores and credit reports to see what needs work.
- Dispute: Dispute errors on your credit report with the responsible credit bureau.
- Pay debts:Pay off your existing debts as quickly as you can to reduce your credit utilization . Consolidate debt or negotiate new loan terms with lenders to make debt repayment more manageable.
- Make on-time payments: Paying your bills on time is probably the most important step to improving your credit scores.
- Borrow responsibly: Keep business credit card balances low going forward and dont borrow more than you can afford to repay.
- Diversify credit: Although credit mix doesnt account for much of your score, it can help boost your scores in addition to managing your credit responsibly .
- Build credit: Build credit by becoming an authorized user on a consumer credit card, getting a credit builder loan, getting a secured credit card or opening new tradelines with vendors, suppliers and lenders.
- Increase business revenue: This is more for your business credit score than your personal, but increasing your revenue and demonstrating financial stability can help boost the Financial Stability Score of your business.
Continue to monitor your credit reports and scores often. Catching errors early may help prevent your scores from dropping unnecessarily.
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A Good Credit Score Unlocks Opportunities
WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.
Strengthen Your Application Using Your Business Plan
When you apply or reapply for a business loan, even a disaster relief loan, having clear financial and operational documents is important. If you keep your business plan alive and current, it will help you avoid putting these together on the spot. Youll also be able to use your business plan as a management tool to track the financial health of your business.
If youre struggling to improve your loan application and find the idea of writing or updating your business plan to create supporting documents to be a daunting task, you may consider trying out LivePlan. Its business planning software that walks you through a step-by-step planning process and is equipped with automatic financials that dont require complex spreadsheets or formulas. In uncertain times, such as these, youll be able to easily run multiple forecasting scenarios to better track your actuals against your business plan, and get the insights you need to make smart, strategic decisions.
Learn how the team at Palo Alto Software developed this living business planning tool with small businesses in mind during the last economic recession.
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Sba Loan Requirements Overview
While the Small Business Administration offers a handful of different loan products, most share the same general requirements for anyone looking to borrow. These have generally not changed much over time, and you can expect to have to meet these qualifications before being considered a serious candidate for SBA loans. Know that the following arent black and white if, for example, you dont have a solid business credit history but have a decent personal credit score, you may still qualify.
What Is An Sba Loan
An SBA loan is a business loan that is guaranteed by the U.S. Small Business Administration . An SBA loan is the Holy Grail when it comes to small business expansion. Small business owners can use these funds in a multitude of ways with the aim of business growth through the SBA 7 or wealth creation through the SBA 504 loan program.
The SBA essentially guarantees a portion of a loan that is acquired through an SBA approved lender. There are two main SBA funding programs which we focus on. SBA 7 and SBA 504.
SBA loans typically can range from around $200,000 up to $22,000,000. The term of the loans can also range from 5 years to 25 years depending on the use of proceeds. The interest rates on SBA loans can be anywhere from mid 3% range to the low 8% range, depending on numerous factors.
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Sometimes Business Is Personal
Remember, there isnt one minimum credit score that applies to all loans, and your personal credit score is usually weighed more heavily than your business credit score. Read lender requirements carefully to see what scores you need to qualify for the loan you want. The higher your credit scores, the more loan options youll have.
Bluevine: Best For Low Interest Rate Business Financing
For a low interest rate business financing option, BlueVine has business lines of credit with interest rates starting at 4.8%, funding for up to $250,000 and no opening or maintenance fees. Approvals can be as fast as five minutes, but a 600 minimum credit score is required, as well as a minimum of six months in business with $10,000 in monthly revenue. BlueVine also offers invoice factoring for up to $5,000,000 with only a 530 minimum credit score and a three-month time-in-business requirement. Only corporations and LLCs can qualify for BlueVine products, and business lines of credit are not available in Nevada, North Dakota, South Dakota and Vermont.
Minimum credit score: 600 for line of credit, 530 for invoice factoring
Time in business: Six months for line of credit, three months for invoice factoring
Revenue requirements: $10,000 in monthly revenue
Restrictions: Not available in Nevada, North Dakota, South Dakota and Vermont
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Sba Loan Rates For Other Disasters
Disaster loan interest rates depend on whether or not you have the ability to access funds elsewhere, which the SBA calls credit available elsewhere:
- If you have credit available elsewhere the maximum interest rate will be 8%.
- If you dont have credit available elsewhere the maximum interest rate will be 4%.
Disaster loan interest rates are fixed, which means that they will stay the same for the life of the loan. Although the above numbers reflect maximum rates, disaster loans often carry lower interest rates, especially for non-profit organizations.
For example, here are the interest rates for businesses in Mississippi and Tennessee that were affected by Tropical Storm Olga:
|NO Credit Available Elsewhere|
Loan rates vary based on the disaster and the area. To see the rates in your area, take a look at the fact sheet related to the incident that affected your business.
What Are My Options Based On My Credit Score
The types of business loans available to you might vary depending on your credit score, though theres no one specific cutoff it varies by lender.
Good to excellent credit: 670 to 800
- Term loans from banks, online lenders and credit unions
- Lines of credit
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What Is Business Credit
A business credit report is like a report card of your businesss history managing different kinds of credit and debt such as credit cards, loans, vendor accounts and lines of credit. Your business credit reports may also contain a business profile with details like the year your business started, how many employees you have and its financial information.
The three major business credit bureaus are:
Each credit reporting agency collects data and creates a credit report based on its credit scoring models.
Not all lenders, creditors and suppliers will report business activity to the business credit bureaus. But because reported business activity will help you build your business credit, it may be in your best interest to ask them to report business activity.
Sba Caplines Program Requirements
If you apply for CAPLines lines of credit, there are also some additional SBA requirements:
- At least one year time in business for a working capital line of credit
- Must be a builder to qualify for a builderâs line of credit
- Must have a history of successfully bidding on and completing contracts to qualify for contracts line of credit
- Must be able to demonstrate a seasonal pattern of business for a seasonal line of credit
Use our guide to SBA lines of credit to learn more about this program and related requirements.
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Best For High Revenue: Credibly
- Invoice factoring
- SBA PPP loans
Depending on which Credibly loan product you choose, you can borrow up to $400,000 and have loan terms up to 24 months. They do offer up to $5 million for business expansion loans just for chiropractors.
Credibly charges a 2.5% origination fee in addition to your factor rate. This factor rate starts at 1.15 and goes up to 1.45. This means on a $10,000 loan with a factor rate of 1.15, you will pay a $1,500 fee. If your factor rate is 1.45, youre paying a $4,500 fee, in addition to the 2.5% origination fee, on a $10,000 loan.
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Top reasons SBA loans are rejected
Worried you wont get approved? Here are the top reasons the SBA rejects applications.
- Poor credit can cause an issue. While the SBA doesnt have any credit cutoffs, most lenders still prefer to work with business owners that have good to excellent personal credit scores. With that said, a past bankruptcy that youve recovered from wont necessarily hurt you, as long as theres a reasonable explanation.
- Past felonies, current criminal proceedings or still being on parole can disqualify a business from getting an SBA loan. You dont, however, typically need to worry about lower-level crimes from 20 years ago or traffic tickets.
- Student loan defaults by a major business owner or defaults on any federal loan could disqualify your business.
- Too many assets may also be a problem. The SBA wants to see that your business has made a real effort to get financing elsewhere, including tapping into some personal or business assets. This doesnt mean you have to go broke, but that you dont have a goldmine you could use but arent.
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Sba Express Loan Requirements
The SBA imposes extensive eligibility requirements on small business owners who want access to Express loan funds. To qualify for an SBA Express loan, an applicant business must:
- Be considered a small business by the SBA
- Operate for profit in the U.S. or its territories
- Have reasonable owner equity to invest
- Have used alternative financial resourceslike personal assetsbefore applying for financial assistance through the SBA
In addition to the SBAs requirements, borrowers must meet their individual lenders requirements. This may include minimum annual revenue, a certain time in business and FICO score requirements, with lenders typically requiring a score of at least 650.
Pursuant to SBA requirements, borrowers also must provide collateral for standard SBA Express loans over $25,000 collateral requirements for Export Express loans are established by individual lenders.
Small Business Administration Loans
SBA loans are a type of term loan offered by lenders through SBA loan programs. Because SBA loans are government-backed loans, lenders can offer loans to entrepreneurs and small businesses that might otherwise be ineligible for other business loans. SBA loans come with other perks like high loan amounts, long repayment periods and low interest rates.
SBA loans dont have a specific minimum credit score requirement, but lenders will set their own requirements. Because these loans are so competitive, lenders typically look for excellent credit scores:
- A personal credit score of at least 680 but 720 is ideal
- A business credit score of at least 80 or a FICO® SBSS score of at least 155
Lenders may also look at the personal credit scores of any co-owner that owns at least 20% of the company. This is because the SBA requires them to sign a personal guarantee, which makes the signer personally responsible for repaying the loan even if the business cant.
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