Types of Small Business Loans: 12 Types You Should Know

There comes a time when every small business needs extra capital in addition to incoming cash flows. Perhaps an unexpected emergency popped up or the business needs new equipment to replace outdated or broken machinery. Maybe the business hasn’t even started yet, and an entrepreneur is ready to launch but the money’s just not there. In these situations, many small business owners make the decision to take out a small business loan.

However, just as every business is unique, so are the needs for capital. Whether you’re brand new to the industry, your personal or business credit scores are low, or you’re aiming for specific rates and terms, there are different loan products available. As a business owner, you should only take out a loan for purposes that are going to improve your business and its cash flow, not lead to a cycle of burdensome debt. This is why it’s important to carefully research all your options for business loans, starting now.

Types Of Business Loans At A Glance

Loan Type What Is It? Best For…

Installment Loans

Loans disbursed in one lump sum and repaid in periodic, fixed installments. Borrowing fees are determined by an interest rate.

Most small businesses.

SBA Loans

Low-cost loans offered by the Small Business Administration and its partners. SBA loans can be used for most business purposes such as working capital, equipment purchasing, real estate purchasing, or refinancing.

Businesses with strong credit and a strong business profile.

Business Lines Of Credit

Credit lines from which the business can draw funds at any time, without going through an application process.

Most small businesses.

Short-Term Loans

Loans disbursed in one lump sum and repaid in periodic, fixed installments. Fees for borrowing are determined by a factor rate.

B2C businesses that need cash fast.

Equipment Loans

Loans used to purchase equipment.

Businesses that need expensive equipment.

Invoice Financing

Financing in which the business’s unpaid invoices are leveraged to access business funds.

B2B businesses with unpaid invoices.

Merchant Cash Advances

Non-loan business financing in which a cash advance company purchases the business’s future revenue at a discount in exchange for cash up-front. Can be used for short-term needs such as working capital, payroll, or emergency funds.

B2C businesses that need a small amount of cash fast.

Personal Loans For Business

Loans in which the borrower’s eligibility is based on their personal profile, not the business profile. Can be used for startup or entrepreneurial purposes.

Startups and entrepreneurs.

Microloans

Installment loans of $50,000 or less.

Startups, entrepreneurs, or other businesses that need a small amount of funds.

Crowdfunding & P2P Loans

Financing in which the funds are sourced from a pool of investors or backers.

Businesses with a consumer-friendly product or business model.

Commercial Real Estate Loans

Loans used to purchase or improve commercial real estate.

Businesses with a strong personal credit and revenue.

Business Credit Cards

Credit lines for everyday business expenses.

Most small businesses.

Installment Loans

Best for…

Most small businesses.

An installment loan is one of the most common types of loans and one that most business owners are already familiar with in some capacity. Mortgages and vehicle loans are just two examples of installment loans.

An installment loan involves a specific amount of money that is paid back through a set schedule of payments. Typically, these payments are made each month, but the pay schedule varies based on the policies of the lender. Each payment will be applied toward the principal, or the balance of the loan, as well as to interest charged by the lender.

The interest rate of a business installment loan is determined by a variety of factors, including but not limited to business and personal credit history and scores, as well as the time in business. Startup businesses, for instance, are seen as riskier borrowers by lenders and may receive a loan with a higher interest rate.

Terms vary and may be determined by the amount borrowed as well as the lender’s policies. Some term loans may last for just a few months, while others may be stretched over several years.

Because installment loans are available in different amounts with a wide variety of rates and terms, it’s important for a business to understand the cost of the loan (use our nifty installment loan calculator for help). A low-interest, long-term loan could be a great business decision, while a high-interest, short-term installment loan could be a burden.

Installment loans can be used for just about anything. However, the smartest and most affordable ways to use these loans is by obtaining a low-interest loan for a larger purchase, such as buying expensive long-term equipment or a commercial vehicle. This allows the business to obtain the funding they need for a large purchase without having to pay the full cost up front. To receive the most favorable rates and terms, a business should be established (in operation for more than 2 years), have proof of positive cash flow, and have a strong credit score.

Installment loans are available through banks, credit unions, and online lenders.

SBA Loans

Best for…

Small businesses with strong credit histories looking for competitive, non-traditional loan options.

The Small Business Administration is a federal organization that serves as a resource for small business owners. One of the biggest benefits offered by the SBA is its low-cost, government-backed loan program.

Business owners do not go directly to the SBA for loans. Instead, SBA-approved lenders known as intermediaries provide funding to small businesses. Since the SBA guarantees large percentages of each loan, lenders are more apt to provide funding to small business owners when traditional options aren’t in the cards.

There are several types of loan programs available through the SBA. This includes the 7(a) standard program, which provides up to $5 million for almost any business purpose. Microloans up to $50,000 are available for smaller financing needs. The SBA also offers the 504 program for the purchase of real estate, the Community Advantage program for businesses in underserved communities, and the Veterans Advantage program for military veterans and service members.

Loan Program Description More

7(a) Loans

Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.

Review

Microloans

Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.

Review

CDC/504 Loans

Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.

Review

Disaster Loans

Loans used to rebuild or maintain business following a disaster. 

Review

These loans are typically reserved for business owners with strong credit scores (at least in the high-600s). The process to receive an SBA loan is notoriously long, potentially taking months from application to funding. However, because the SBA has set interest rates and terms, these are also some of the most affordable loans on the market. Find out more about qualifying for SBA loans.

SBA loans serve many different purposes. They are ideal for large purchases, including equipment, commercial real estate, or even acquiring a business. They can also be used for working capital or to refinance existing debt. These loans are extremely flexible and with so many programs, it’s easy to find one that works for any business that meets the SBA’s requirements.

SBA loans can be obtained through intermediary lenders, including banks, credit unions, non-profit organizations, and Commercial Development Companies.

Business Lines of Credit

Best for…

Businesses that want a flexible credit option and on-demand access to funds.

A business line of credit is very similar to a credit card. A business is given a maximum credit limit. The business can spend up to that limit, making multiple draws if needed. Interest will be applied to the borrowed funds and will be paid back with the principal through scheduled payments.

Unsecured and secured credit lines are available. Unsecured lines do not require any collateral and are available to borrowers with positive credit histories. Secured lines are often given to startups and applicants with lower credit scores. Secured lines of credit are backed by assets or property to be used as collateral. If a borrower defaults, the lender can use the collateral to pay off the debt.

Lines of credit are best used for unexpected expenses or to resolve cash-flow shortages. They can also be used to purchase supplies or inventory for seasonal increases. Like a credit card, it is important to use a business line of credit only when needed and to pay borrowed funds back as soon as possible to avoid paying hundreds or even thousands of dollars in interest.

Business lines of credits are available through banks and credit unions. Some alternative online lenders also provide lines of credit. For example, SBA has lines of credit can be issued via SBA-approved intermediary lenders. Learn more about how to obtain business lines of credit.

Short-Term Loans

Best for…

Emergency financial needs or businesses with low credit scores.

A short-term loan must be repaid over a short period of time, usually within one year. The repayment period varies according to lender, but it could be months or even a few weeks. Short-term loans offer a quick way to get much-needed cash and are best for unexpected emergencies.

Short-term loans may also be an option for businesses with bad credit. Low business or personal credit scores may disqualify business owners from long-term loans with better terms and rates. A short-term loan could be a good way for borrowers with a poor credit history to get the money they need quickly while also boosting their credit after paying off the loan.

However, it is very important to remember that these loans often come with very high interest rates. Because short-term loans can be very expensive, it’s important to use them only when emergencies arise that cannot be resolved through other means. Find out everything you need to know about short-term loans before applying.

Short-term loans can be obtained through alternative online lenders. These loans are typically easy to receive and do not require an extensive application process like other types of loans.

Equipment Loans

Best for…

Companies that want to purchase equipment with low monthly payments.

Sometimes, entrepreneurs need to purchase equipment to get their businesses off the ground. Other times, more equipment is needed when production increases or new equipment is needed to replace old or outdated machinery. When this occurs, it can be difficult for a small business to come up with the funds to pay out-of-pocket. Instead, businesses turn to equipment loans to make these large purchases more affordable.

An equipment loan is used to purchase equipment. The business will immediately get to use the equipment but won’t have to pay the full cost up front. Instead, it will be able to pay smaller payments on a monthly basis (or other repayment schedule). The lender charges interest for loaning the funds to the borrower.

Equipment financing is a good choice for anyone who wants a more affordable option for purchasing expensive equipment. Equipment financing is also an option for startups or business owners with lower credit scores, and it’s easier to obtain than other loans like SBA loans or installment loans. No collateral is typically required for this type of financing, as the equipment itself serves as the collateral and can be repossessed if the owner defaults.

Some banks and credit unions offer equipment financing. Online lenders also have options. Equipment manufacturers may also have their own credit program available for qualified borrowers.

Invoice Financing

Best for…

Businesses that have cash flow shortages due to unpaid invoices.

There comes a time for many small businesses when there’s a cash flow shortage due to slow-paying accounts receivables. To resolve these cash flow issues, invoice financing can help.

There are two main options for invoice financing. The first is known as invoice factoring. With invoice factoring, a lender pays the small business a percentage of its outstanding invoices. The lender then collects payments from the invoiced customers. Once payment has been collected, the lender pays the business the remaining outstanding balance, less any interest and fees for providing the service.

Invoice discounting is another type of invoice financing. With invoice discounting, a percentage of the unpaid invoice is paid to the small business. Once the business collects payment from its customers, the loan is repaid along with interest and fees.

Invoice factoring is best used for resolving cash flow issues that stem from unpaid invoices. These loans are usually quite easy to receive, and unlike other types of loans, your credit score isn’t the most important factor. The invoices serve as the collateral for these loans, so no additional collateral is needed. Invoice financing is available through banks and alternative lenders.

Merchant Cash Advances

Best for…

Small businesses with lower credit scores that need cash quickly.

Small businesses that need money quickly for an emergency situation or to purchase supplies or inventory may consider a merchant cash advance. With a merchant cash advance, a lender advances a company money in return for a percentage of future credit card sales.

After receiving a merchant cash advance, daily payments are withdrawn by the lender from the business’ bank account. When sales are lower, the payment is also lower because the payment is based on a percentage of sales. Merchant cash advances may be a consideration for businesses with lower credit scores, as the lender is more concerned with the amount of credit card sales. This type of financing is usually provided very quickly – in some cases, within 24 hours.

The major drawback of merchant cash advances is that interest rates can be much higher than with other lending options, making this a very expensive form of credit. As with other types of loans, a small business should consider the total cost of the merchant cash advance and shop around for the best rates. Merchant cash advances are available through alternative lenders. Learn more about applying for a merchant cash advance.

Personal Loans For Business

personal loans used for business

Best for…

Startup businesses that have not established a positive business credit history.

A personal loan for business is an option for businesses that do not have the credit score or business documentation required to qualify for a business loan. With a personal loan, the small business owner uses his or her own credit score and income documentation to qualify. The business owner will be held personally liable for the debt.

This is often a lending choice for startup businesses. If the business is new, it isn’t able to prove its success through past income tax returns, profit and loss statements, and other documentation. The business also likely hasn’t built up a solid credit history. All of this together throws up a red flag for lenders, who see the startup as being a bigger risk.

While there are loans available specifically for startups, sometimes interest rates can be high. If a startup owner has good personal credit and documentation to prove that the loan payments can be made each month, a personal loan may be a more affordable form of financing.

Personal loans are flexible and offer many different rates and terms. A long-term loan with a great interest rate could be an affordable form of financing for large business purchases. A personal loan can even be used to acquire or start a new business.

Personal loans are available through banks, credit unions, and alternative lenders. Private lenders, including family and friends, may also be an option.

Microloans

Best for…

Smaller businesses, sole proprietors, and startups with low capital requirements.

Small businesses that don’t require a lot of capital may want to consider applying for a microloan. A microloan is defined as a smaller loan of typically $50,000 or less. These funds can be used for many business expenses, including but not limited to expansion and startup costs.

Because these are smaller loans, they are best for smaller businesses, sole proprietors, and startups that have lower capital requirements than other businesses. Small businesses that don’t have any luck working with traditional financial institutions turn to microlenders.

Microloans can be obtained through non-profit organizations. The potential drawback is that these organizations often receive government grants, limiting the amount that they can lend out, as well as the number of businesses they can help. However, one big advantage is that in addition to providing needed funds to small business owners, many nonprofit organizations offer additional benefits such as training and education to help a small business or startup succeed.

Crowdfunding & Peer-to-Peer (P2P) Loans

go fund me for business start up

Best for…

Businesses that are looking for an alternative to bank loans.

Receiving a loan from a bank or other financial institution usually means low interest rates and competitive terms. However, any business owner that has ever received a loan from a bank knows that the process can be quite lengthy – taking as long as several months from start to finish.

Maybe the timeline isn’t a problem, but instead, the business is a startup and hasn’t yet built a reputation to even qualify for a traditional loan.

Startups and businesses that want to avoid the hassle of working with a bank have two alternatives: crowdfunding and peer-to-peer loans.

With crowdfunding, a small business or startup uses an online platform to raise money from a group of investors. The small business pitches its idea to investors, and investors donate money if the idea appeals to them. It’s important for the business seeking financing to map out a strategy to entice investors. The borrower will need to promote their campaign, encourage others to share, and offer rewards to investors – think equity in the business or free products. There are hundreds of crowdfunding sites available online.

Peer-to-peer, or P2P, is a type of lending that also involves private investors. However, it differs significantly from crowdfunding. Small businesses are connected with lenders through a P2P network. After filling out information, such as the amount of money needed and how it will be used, the borrower is matched with a lender. Rates and terms are agreed upon, and the paperwork can be completed and signed online.

This form of financing is much quicker than getting a loan from a bank or other traditional source. Borrowers will pay monthly payments over a set period of time, which could be as short as a few months or as long as several years. Business owners with high credit scores can receive very competitive interest rates, making this an affordable form of financing. Small businesses can apply for P2P loans online through lending networks.

Commercial Real Estate Loans

Best for…

Businesses that need funds to purchase real estate.

Commercial real estate loans can help you purchase or upgrade commercial real estate. These funds can be used to purchase an existing building or land, upgrade or add-on to an existing property, or construct a new building.
Commercial real estate loans are long-term loans that are paid off over a longer period of time, such as 20 or 30 years. This allows a business to expand their operations through affordable monthly payments.

These loans can only be used toward the purchase, development, or construction of commercial real estate. In some cases, the funds may be used to purchase long-term fixed assets (such as with the SBA 504 loan).

Commercial mortgages are available through banks and credit unions. SBA 504 loans can also be used to purchase commercial real estate. The SBA 7(a) program is also another great option that provides up to $5 million for the purchase of real estate or any other business expense.

Business Credit Cards

Best for…

Businesses that need on-demand financing for emergencies and business expenses and want to boost their credit scores.

A business credit card is a card that is used for business purposes. The lender provides the borrower with a set credit limit. The borrower can use the card to make multiple charges up to the amount of the credit limit. Interest is charged only on the funds that are used. The borrower then makes monthly payments to pay down the balance. As long as the card hasn’t been used up to its credit limit, it can be used over and over again.

A business credit card is a good financing option for emergency expenses or cash flow shortages. It can also be used to purchase supplies or inventory or to pay for other expenses. However, it’s important to note that the balance should be paid off or reduced as soon as possible to prevent paying interest month after month.

When used responsibly, credit cards can also be used to boost a business’ credit history. This could lead to higher credit lines in the future, as well as opening up other opportunities for funding (including long-term loans). However, carrying a high balance can lead to a high level of credit utilization, which can negatively impact a credit score. Late payments and missed payments can also hurt a credit score, which is why it’s so important to never miss a payment, just like any other financing option.

Business credit cards are available through many banks and credit unions. Retailers that provide supplies and other items needed by a small business often have their own business credit cards available.

Final Thoughts

Running a small business can be expensive, and seasonal increases, unforeseen emergencies, unpaid invoices, or the need for expansion can all lead a business owner to pursue financing options. While there are many affordable loans available, it’s important to fully evaluate all lending options, the total cost of the loan, and the return on investment from taking the loan. A smart business owner will take the time to weigh out the pros and cons before signing the paperwork to ensure that the loan will help the business prosper.

The post Types of Small Business Loans: 12 Types You Should Know appeared first on Merchant Maverick.

“”

Government Business Loans: What Small Businesses Need To Know

Not all small businesses are the same, but they all have one thing in common: the need for capital to grow, expand, and be successful. Unfortunately, small businesses don’t have unlimited funds available, so they often need a helping hand in the form of a business loan. Getting funding from a bank, credit union, or another traditional route isn’t always possible. Small businesses – especially those that have not been in business for long – are intrinsically risky prospects, and many lenders don’t want to take that gamble.

However, there is an alternative to traditional loans: government-backed business loans. These loans offer benefits to borrowers and lenders alike, creating a win-win situation for everyone involved. How does the process work? Is a government loan right for your business?

Read on to learn everything you need to know about government business loans.

What Are Government Business Loans?

Government business loan programs offer opportunities for small businesses to obtain funding. Small businesses and startups are often unable to obtain traditional bank loans since they’re viewed as riskier ventures by lenders. That’s precisely why the Small Business Administration has stepped up to provide funding options that benefit both the lender and the borrower.

The Small Business Administration, or SBA, was established in 1953 to provide resources for small businesses. In addition to offering training programs and other tools to help small business owners succeed, the SBA has also established several funding programs designed specifically to aid small businesses.

The SBA itself does not provide loans to small business owners. Instead, partner lenders known as intermediaries are used to provide funding. The SBA has established guidelines under each program, keeping interest rates low and offering longer terms to make loans more affordable for the small business owner. The SBA guarantees a percentage of the loan — usually anywhere from 50-85% of the funding. In other words, the Small Business Administration agrees to repay the guaranteed portion of the loan if the borrower defaults. This mitigates much of the risk for the lenders, giving them more incentive to lend to small business owners.

Who Are Government Business Loans For?

project management software

Government business loans are available to every for-profit small business in the United States, providing the business meets the qualification guidelines. To obtain an SBA loan, each business must officially qualify as a small business based on its number of employees, net worth, and annual revenue.

The SBA offers multiple programs to fit the needs of just about any small business. Established businesses can use SBA-backed loans to expand with new or updated facilities, purchase equipment, or obtain working capital. Startups can also qualify to receive funding for their next big project. The purchase of businesses and franchises can be funded through SBA loan programs as well.

The SBA offers funding opportunities for military veterans and service members through the Veterans Advantage program. Businesses run by women, minorities, and veterans, or those in underserved communities — including low-income areas — can request funding through the Community Advantage program.

SBA Loans For Immigrants

Although SBA loans are for businesses based in the United States, loan opportunities are available for immigrant small business owners. Permanent residents, naturalized citizens, and refugees or asylees with lawful permanent resident status can apply for government-backed loans. Lawful non-permanent citizens can also qualify provided they have up-to-date work visas. There are no special requirements for immigrants when applying for this funding. However, all immigration paperwork and documentation – in addition to the standard loan paperwork – will be required.

SBA Loans For Felons

Small business owners with felony records may still be able to obtain SBA-backed loans. The SBA’s rules state that funding will not be available for anyone with a record containing crimes of moral turpitude. This includes violent crimes such as homicide or aggravated kidnapping, as well as crimes of dishonesty such as theft, embezzlement, or fraud.

Felonies that do not involve moral turpitude may also disqualify an applicant from receiving funding based on the policies of the intermediary. Some lenders may opt to not loan to anyone with a felony record; therefore, any applicant convicted of a felony may have to shop around to find a lender willing to work with their criminal background.

Types Of Small Business Loans Offered By The Government

The SBA has multiple loan programs in place to meet the needs of small business owners. Potential borrowers should understand the interest rates, terms, repayment plans, and how each loan’s proceeds can be used before applying for a government loan.

General SBA 7(a) Business Loans

When most people think of government business loans, the SBA 7(a) program is typically what comes to mind. This program is the most popular because of its high maximum loan amounts, long repayment terms, and flexibility regarding how funds can be used.

SBA 7(a) loans can be used for just about anything. Funding is available to acquire a business or franchise. Existing businesses can purchase equipment, real estate, or use the money as working capital. Existing debt can also be refinanced using 7(a) loan proceeds. The possibilities are virtually endless with the SBA 7(a) loan, which is why it’s such a popular choice among small business owners.

Loans of up to $5 million can be taken out through the SBA 7(a) program. Interest rates are extremely competitive and are capped at a maximum of 4.75% over the base rate.

Loan Amount Less Than Seven Years More Than 7 Years

Up to $25,000

Base rate + 4.25%

Base rate + 4.75%

$25,000 – $50,000

Base rate + 3.25%

Base rate + 3.75%

$50,000 or More

Base rate + 2.25%

Base rate + 2.75%

Repayment terms are set at 10 years for most purposes and 25 years for real estate. Ready to get started? Learn everything you need to know about SBA 7(a) loans.

SBA Express Loans

The SBA Express program is very similar to the 7(a) program in terms of how money can be employed. These funds can be used for just about any business-related expense. However, there are a few key differences between the Express program and the 7(a) program.

One of the biggest differences is that applicants for an Express loan will receive an approval response within 36 hours, compared to weeks through the 7(a) program. A major drawback with this program, however, is that the maximum loan amount is capped at $350,000.

Maximum repayment terms are the same as for 7(a) loans: up to 10 years for working capital and 25 years for commercial real estate. Interest rates are slightly higher for Express loans at 4.5% to 6.5% over the base rate.

SBA 7(a) Loans SBA Express Loans

Time to Approval

2 – 4 weeks

36 hours

Max. Loan Amount

$5 million

$350,000

Interest Rates

Base rate + 2.25% – 4.75%

Base rate + 4.5% – 6.5%

Max. Repayment Terms

  • 10 years for working capital
  • 25 years for commercial real estate
  • 10 years for working capital
  • 25 years for commercial real estate

SBA Lines of Credit (CAPLines)

The SBA offers lines of credit known as CAPLines. There are four different CAPLines programs that designate how funds can be used.

CAPLine Type Loan Use

Working Capital CAPLines

Lines of credit that can be used for short-term needs such as working capital or operating expenses. 

Seasonal CAPLines

Lines of credit used by seasonal businesses to cover the costs of seasonal increases in accounts receivable or inventory. Seasonal CAPLines can not be used to cover costs during the off-season. 

Contract CAPLine

Lines of credit available for contractors to cover the costs of specific contracts. Credit lines can be used for overhead and general / administrative expenses. 

Builder’s CAPLine

Lines of credit used for expenses related to the construction and renovation of a residential or commercial buildings for resale. This line can be used for costs such as labor, supplies, materials, landscaping, or other substantial costs during the construction and renovation process. 

  • Contract CAPLines are used for financing costs related to specific contracts. These proceeds can be used toward overhead costs, administrative expenses, and general expenses. These loans cannot be used for purchasing assets, refinancing debt, or paying back taxes.
  • Seasonal CAPLines provide funding for inventory and accounts receivable during a busy seasonal period. In some instances, it can be used to fund increased labor costs.
  • Builder’s CAPLines are used to pay for expenses related to the construction or renovation of residential and commercial buildings that will be resold. Proceeds can be used toward labor, materials, landscaping, utility connections, and fees such as building permits.
  • Working Capital CAPLines provide short-term working capital for businesses. Fixed assets may be acquired using this credit line, but it must be refinanced within 90 days.

Loans of up to $5 million are distributed through all CAPLines programs. The maximum repayment term is 10 years, with the exception of Builder’s CAPLines, which have maximum terms of 5 years. The interest rate will never exceed 4.75% over the base rate.

Term Rates/Fees

Maximum Borrowing Amount

$5 million

Maximum Term Length

  • 5 years for Builder’s CAPLines
  • 10 years for Seasonal, Working Capital, and Contract CAPLines

Percentage Guaranteed By The SBA

  • 85% for loans below $150,000
  • 75% for loans above $150,000

Interest Rates

Base rate + 2.75% to base rate + 4.75%

Fees

  • Guarantee fee of 0.25% – 3.75% of the portion of the loan guaranteed by the SBA
  • Other possible fees charged by the bank / partner lender

SBA CDC/504 Loans

The SBA CDC/504 program is a government business loan program that provides financing for business expansion. Loan proceeds can be used to purchase buildings or land, build new facilities, renovate existing facilities, or purchase long-term machinery. Loan funds can also be used toward consolidating existing debt related to the purchase or renovation of facilities or equipment.

Through the SBA CDC/504 program, a borrower receives up to 40% of the project costs through an SBA-approved Certified Development Company, or CDC. Fifty-percent of the project cost is obtained by the borrower through a bank, credit union, or other lenders. The remaining 10% is paid by the borrower.

The maximum funding amount through the CDC/504 loan program is $5 million. Repayment terms are set at 10 years and 20 years, while the interest rate is based upon the 5-year and 10-year Treasure issues rate.

SBA 504 Loans

Borrowing Amount

No maximum, but the SBA will only fund up to $5 million

Term Lengths

10 or 20 years

Interest Rates

Fixed rate based on US Treasury rates

Borrowing Fees

  • CDC servicing fee, CSA fee, guarantee fee, third party fees (however, most of these fees are rolled into the interest rate or cost of the loan)
  • Possible prepayment penalty

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral required; usually the real estate/equipment financed

Down Payment

10% – 30%

Find out more about the terms, rates, and requirements for SBA 504 loans.

How Does The CDC/504 Program Differ From The SBA 7(a) Program?

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.

SBA Microloans

The SBA Microloan program provides loans to all small businesses that meet the basic requirements of the SBA. Non-profit childcare centers are also eligible to apply. Microloans can be used as working capital or to purchase inventory, supplies, fixtures, or equipment. Microloan proceeds cannot be used for the purchase of real estate or to refinance debt.

The maximum amount that can be borrowed through the Microloan program is $50,000. Interest rates for microloans vary by lender and are dependent upon their cost of funds. The typical interest rates for these government-backed loans are between 8% and 13%. The maximum repayment term for microloans is 6 years.

SBA 504 Loans

Borrowing Amount

$500 – $50,000

Term Lengths

Up to 6 years

Interest Rates

6.5% – 13%

Borrowing Fees

Possible fees from the loan issuer

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral normally required, but depends on the lender

Down Payment

  • No down payment for most businesses
  • Possible 20% down payment for startups
  • Possible 10% down payment for business acquisition loan

Learn more about microloans and if these loans are right for your business.

SBA Disaster Loans

A disaster or unexpected event can cripple a business, even leading to its closure. SBA Disaster Loans are available to provide small business owners with the aid they need to keep their businesses alive.

  • Business Physical Disaster Loans provide up to $2 million to businesses and non-profit organizations to rebuild or replace property including buildings, equipment, and inventory following a disaster. Interest rates for these loans are set at 4% and 8%, with repayment terms up to 30 years.
  • Economic Injury Disaster Loans are available to small businesses, non-profits, and agricultural co-ops that are significantly affected by economic injury. Funding up to $2 million is available to help cover operating expenses and debts. Interest rates for these loans are 4% with repayment terms up to 30 years. Businesses may obtain a Business Physical Disaster Loan in addition to an Economic Injury Disaster Loan, but proceeds between both loans may not exceed $2 million.
  • Military Reservists Economic Injury Loans are available to reservists who are put on active military duty. These funds can be used to cover operating expenses but do not apply to refinancing debt, business expansion, or to cover profit or income loss. A maximum of $2 million may be borrowed based on the SBA’s calculation of the actual economic injury. Interest rates are 4% with maximum repayment terms of 30 years.
Term Rate/fee

Borrowing Amount

Maximum $2 million

Term Lengths

  • Max 30 years if no credit available elsewhere
  • Max 7 years if credit available elsewhere

Interest Rates

  • Maximum 4% if no credit available elsewhere
  • Maximum 8% if credit available elsewhere

Fees

None from the SBA; possible fees from outside agencies

Qualifying For A Government Business Loan

personal loans used for business

 

To qualify for a government business loan, a business must be based and operated in the United States. Unless otherwise specified, businesses should be for-profit. All businesses should meet the definition of a small business under the SBA’s guidelines, which limits the number of employees, annual revenues, and company net worth.

Applicants must have a good credit score, with a minimum recommended score of 680. Business and personal credit reports will be considered when applying for an SBA loan.

For many government loans, collateral is required. If there is not adequate business collateral, personal collateral in the form of real estate may be accepted. All borrowers must also sign a personal guarantee to be held liable in the event that the loan goes into default.

Down payments and fees will also be required and will vary based on the type of loan taken, the amount borrowed, and the lender’s policies.

To qualify for the Community Advantage program, the business must operate in an underserved area. To qualify for the Veterans Advantage program, the business must be at least 51% owned and operated by a military veteran, service member, reservist, National Guard member, or qualifying spouses or widows.

Can I get a government business loan if I have bad credit?

Credit is an important factor in qualifying for a government business loan. A minimum score of 680 is typically required to qualify for most SBA loan programs.

In addition to the credit score, intermediary lenders will also evaluate a credit report. Previous defaults on government-backed loans, bankruptcies, and foreclosures will be likely to disqualify the loan applicant. Additional negative items, such as collections and missed payments, will need to be explained by the applicant.

Any potential borrower that does not have a good credit score should work on raising their score before applying for government-backed loans. This can be done by obtaining a free credit report and score, paying off existing debt, and disputing any erroneous credit report items. Learn more about ways to boost your credit score.

I’m not qualified for a government business loan. What are my other business loan options?

Whether your credit score misses the mark or you just don’t meet the standard requirements need for government business loans, there are other options available. These options include working with your bank or credit union, borrowing from non-profit lenders, or seeking financing through online lenders.

How To Apply For A Government Business Loan

You know what government business loans are out there. You’ve selected a loan that fits your needs. The next step is to apply for your loan. Though the process can be time-consuming, it’s not much different from applying for a traditional loan from your bank.

To begin, the first step is to find an intermediary lender. You can find a lender through the SBA’s Lender Match tool, by a referral through your existing financial institution, or through an online loan broker.

In order to apply for a government business loan through an intermediary, required paperwork will need to be gathered. This includes business balance sheets, income statements, personal and business income tax returns for at least 3 years, and personal financial statements.

If loan proceeds are to be used toward the purchase of a business or franchise, documentation including real estate purchase agreements and business/stock/asset purchase agreements will be required. For debt refinancing, copies of notes, leases, and payment transcripts will need to be submitted with the loan application.

Startup businesses that don’t have all the required documentation must provide proof of industry experience, a detailed business plan, and financial projections with their applications.

Once the loan application is submitted, approval can take several weeks. However, with Express loans, approvals are given within 36 hours, although underwriting and funding can add additional weeks to the overall timeline. When going the traditional route with an intermediary lender, the entire loan process will take approximately 30 to 90 days.

To expedite the process, some borrowers opt to work with Smart Biz. This online marketplace simplifies and shortens the government loan application process and even provides non-SBA loan options when applicants fail to qualify.

Learn more about the process of applying for an SBA small business loan.

Alternatives To Government Business Loans

Even though government business loans are preferred by many entrepreneurs due to their long repayment terms and low interest rates, not every small business qualifies. Whether your business doesn’t qualify, your credit score isn’t yet high enough, or you need funding immediately, there are alternatives to consider.

Online Business Loans

Applying for a loan online is a great choice for many small business owners because these loans can be funded fast and requirements are much less stringent. Loans are available for business owners with credit scores as low as 500, although it’s important to note that terms and interest rates won’t be as favorable.

Through online lenders, small business owners can obtain installment loans, short-term loans, a business line of credit, equipment financing, or invoice financing. The required time in business and revenues vary, but requirements are typically lower than those required to obtain a government-backed loan. Depending on the type of loan requested, there may not be as much paperwork required as when applying for a government business loan.

Interest rates are based on the loan selected and creditworthiness. Repayment terms also vary and can range from a few months to several years. Daily, weekly, and monthly payment options are available depending on the lender and loan selected.

This is a great option for business owners with a low credit score or who don’t meet the requirements needed to get a government business loan. Interested in an online business loan? Narrow down your lender search by easily comparing lenders.

Banks & Credit Unions

Another business loan option is to go the traditional route with a bank or credit union. This option is best for a business owner that has collateral and a good credit score.

To apply, start with your existing financial institution. Speak with a loan specialist at your local branch, online, or over the phone to find out the types of loans available. This could include term loans, unsecured lines of credit, or other types of financing. Terms and interest rates vary by institution, creditworthiness of the borrower, and financing option selected.

It’s also important to learn about the requirements for obtaining one of these loans. Generally, collateral is needed as well as a credit score in the high 600s. However, requirements vary by institution. For loans, the funding process can take several months. If a faster option is needed, business credit cards for qualifying borrowers can typically be approved and sent out within days.

Non-Profit Business Lenders

Working with a non-profit business lender is another way to obtain small business loans. Typically, the loan amounts available through these lenders are much lower than government loans, usually maxing out at $50,000.

Because non-profit lenders are more limited in how much they can lend, they may be more selective with approvals. Applicants should expect to gather much of the same paperwork as required with government loans, while attending training or workshops may be required as a condition of the loan.

Loans from non-profit lenders often come with low interest rates. A good credit score is typically required, although qualifications vary by lender. Proof of sufficient cash flow, no bankruptcy filings, and other factors may be considered for loan approval.

Final Thoughts

Getting funding is often a critical step for taking a small business to the next level. For those who qualify, government business loans offer some of the best rates and terms on the market, helping to grow a business without adding a heavy debt burden. Though the process can be a bit difficult to navigate, knowing what to expect and the steps needed to qualify will pay off in the end for many small business owners.

The post Government Business Loans: What Small Businesses Need To Know appeared first on Merchant Maverick.

“”

What Are CAPLines? 4 SBA Lines of Credit You Need to Know About

Before we take a deeper dive into the SBA’s CAPLine program—and determine whether it’s right for you—let’s take a few moments to talk about what the SBA is and how its services differ from traditional loan programs. SBA loans are backed by the Small Business Administration, a government-run program that aims to help strengthen American businesses. The Small Business Administration has delivered millions of loans to American workers since it was established in 1953. Since then, its primary mission has been to, “aid, counsel, assist, and protect, insofar as possible, the interests of small business concerns.”

The SBA has evolved in recent years to encourage the small business in more ways, with programs tailored to reach women, minorities, low-income, and veteran business owners.

By far the most popular SBA program is the SBA 7(a). That’s because it provides a lump sum to fund startup costs, purchase new land, machinery, or storefront furnishings, undertake growth projects, and more. But sometimes these larger lump sums aren’t the best fit, and a revolving line of credit — such as the one offered by the CAPLines program— makes more sense.

Go to our guide on best business line of credit options.

What Are CAPLines?

Most people associate the SBA loan program with traditional lump-sum, small business financing; many business owners aren’t aware that lines of credit are also available to them. There may be many situations in which a line of credit just makes more sense than a traditional loan. Whether you’re facing an upcoming project with a looming, uncertain budget, or extra seasonal requirements for inventory due to your business model, CAPLines (SBA lines of credit) may prove to be invaluable.

Read on to find out more about the four SBA loan programs that offer lines of credit under the CAPLines umbrella.

The 4 Types Of CAPLines

There are four distinct loan programs offered under the CAPLines program for small business owners. Offering loans of up to $5 million, backed by a 75-80% SBA guarantee, this program provides necessary funds to business owners who may need a revolving line of credit while easing the burden of risk for lenders. Thanks to that SBA guarantee, acquiring the financing you need for those cyclical ebbs and flows in your revenue may be more accessible than you think.

The four types of CAPLine loans are the Working Capital CapLine, Seasonal CAPLine, Contract CAPLine, and Builder’s CAPLine. We will go into each in much deeper detail below, so keep reading to find out which may be the perfect fit for you.

CAPLine Type Loan Use

Working Capital CAPLines

Lines of credit that can be used for short-term needs such as working capital or operating expenses. 

Seasonal CAPLines

Lines of credit used by seasonal businesses to cover the costs of seasonal increases in accounts receivable or inventory. Seasonal CAPLines can not be used to cover costs during the off-season. 

Contract CAPLine

Lines of credit available for contractors to cover the costs of specific contracts. Credit lines can be used for overhead and general / administrative expenses. 

Builder’s CAPLine

Lines of credit used for expenses related to the construction and renovation of a residential or commercial buildings for resale. This line can be used for costs such as labor, supplies, materials, landscaping, or other substantial costs during the construction and renovation process. 

Working Capital Line of Credit

A Working Capital Line of Credit is a CAPLines program geared toward businesses that sell on credit. If that sounds like your business model, it may make sense for you to consider this type of loan—especially if you’ve struggled with the availability of financing from other types of loans.

Working Capital CAPLine loans offer a source of financing in the form of a revolving line of credit that can be used for your short-term operating and working capital needs. However, funds from this type of loan can not be used to pay state sales tax or other similar trust funds, nor can you use them to pay delinquent withholding taxes or floorplanning. For more on collateral requirements, see the SBA Line of Credit Eligibility & Collateral Requirements section below.

Seasonal Line of Credit

A Seasonal Line of Credit CAPLine can be used to finance businesses that require additional inventory, accounts receivable, or labor at certain times of the year. It’s a misconception that this type of credit is meant to get you through the off-season, as the proceeds must go towards supporting growth during high-volume periods rather than boosting your working capital during slow periods.

A seasonal line of credit works great for business owners who understand their seasonal patterns and want to avoid taking one lump sum. Lines of credit can relieve holiday pressures and help you keep momentum to fulfill growth during those busy seasons—it’s a win-win.

Contract Line of Credit

A Contract Line of Credit is there to fulfill one purpose: to finance the costs of specific contracts. Funds can be used to cover overhead or administrative costs and general expenses, too, as long as these are allocable to a specific contract or contracts.

When applying for a Contract Line of Credit through CAPLines, consider that the money cannot be used for certain purposes, including:

  • Permanent working capital
  • Purchasing fixed assets
  • Paying delinquent taxes
  • Refinancing existing debt
  • Financing a contract that is already significantly underway
  • Change of ownership for floorplan financing
  • Covering a markup or profit
  • Financing the performance of another contract

Other SBA loan programs (the 7(a) program comes to mind) would be more appropriate for the above financing needs. Contract Line of Credit CAPLines should only be considered if you need funding for one or more specific contracts, and you’ll have to account for those for in relation to the work or outcome.

Builder’s Line of Credit

Similar to the Contract Line of Credit, a Builder’s Line of Credit can only be used for very specific purposes. If you’re a business owner who needs to finance the cost of direct expenses incurred during a construction project, this may be your opportunity.

You can’t use the funds to purchase vacant land for future construction or hold any rental property for future rehab, but you can use funds for the following:

  • Labor
  • Supplies and materials
  • Equipment rental
  • Direct fees like permits, inspections, etc
  • Utility connections
  • Septic tank construction
  • Landscaping
  • Renovation (over ⅓ of the purchase price or fair market value)

When you’re developing residential or commercial properties to resell and you need a line of credit to cover expenses, the Builder’s Line of Credit may be the right fit for your needs. Read on below to find out more about CAPLine requirements, eligibility, and how to get started.

SBA Line Of Credit Eligibility & Collateral Requirements

To qualify for any type of loan through the SBA, including CAPLines, you’ll need to meet the SBA size standards for a small business, operate for profit, and have reasonable equity to invest. There are certain requirements for size depending on industry and type of business—you can check out the SBA size standards to see if you qualify.

The most basic things you’ll need to do first are demonstrate your need for the funds and show that your business (or your business plan if you’re a startup) and credit score are healthy. In general, to receive an SBA CAPLine, you must:

  • Be a small business as defined by the SBA
  • Demonstrate you have the ability to repay the loan
  • Operate for profit 
  • Conduct business in the U.S. and have a physical location in the U.S.
  • Show that you have invested your own money and time in your business
  • Prove that you were not able to obtain financing from other lenders
Bad credit and need funds now? See top business credit cards available to you.

Because each CAPLine meets a specific need, there are some variations in the requirements for each distinct type. Here’s a quick look of what to expect for each below.

Working Capital Line Of Credit

To obtain a Working Capital Line of Credit, you must:

  • Generate accounts receivable or have inventory
  • Agree to a loan term of ten years or fewer

Collateral requirements are the first lien on accounts receivable and inventory.

Seasonal Line Of Credit

For a Seasonal CAPLine, you must:

  • Have been operational for at least one year
  • Demonstrate a predictable pattern of seasonal activity
  • Agree to a loan term of ten years or fewer

There are no specific collateral requirements for Seasonal CAPLines.

Contract Line Of Credit

If you want a Contract CAPLine, you must:

  • Have the ability to bid on and perform the identifiable type of work that the contract requires
  • Secure the financial capacity and expertise to finish the contract for a profit and on time
  • Demonstrate that you can operate at a profit based on the completion of your previous contracts

Collateral requirement is a first lien position on the contract and proceeds.

Builder’s Line Of Credit

To meet the requirements for a Builder’s CAPLine, you must:

  • Be a contractor or home builder in construction with demonstrable managerial and technical prowess
  • Have at least one of your supervisory employees on site or perform the work yourself
  • Demonstrate a plan for prompt and significant renovations (over a ⅓ of value)
  • Show that you have successfully bid and completed a comparable project

Collateral requirements are the first lien on accounts receivable and inventory

SBA Line of Credit Rates & Terms

The table below lays out what you can expect regarding CAPLine rates and terms for a loan through the SBA. You can also view current SBA loan rates to see the latest figures.

Term Rates/Fees

Maximum Borrowing Amount

$5 million

Maximum Term Length

  • 5 years for Builder’s CAPLines
  • 10 years for Seasonal, Working Capital, and Contract CAPLines

Percentage Guaranteed By The SBA

  • 85% for loans below $150,000
  • 75% for loans above $150,000

Interest Rates

Base rate + 2.75% to base rate + 4.75%

Fees

  • Guarantee fee of 0.25% – 3.75% of the portion of the loan guaranteed by the SBA
  • Other possible fees charged by the bank / partner lender

Some additional fees through the CAPLines program include packaging or service fees, late payment fees, and appraisal and environmental reports if applicable; renewal fees apply for a short-term loan that exceeds twelve months. Because these are revolving lines of credit, expect some differences as far as interest rates, too. Rates can be fixed or variable, so make sure you understand the terms before deciding what’s best for your business needs.

Alternatives To SBA CAPLines

For some businesses, a CAPLine just doesn’t fit. Whether it’s that you don’t meet the requirements, you need something faster, or you simply want to arm yourself with more knowledge, learning about non-traditional, online lines of credit can be an important step in the decision-making process.

Online lenders can provide an easier avenue to much-needed funds—not to mention that they don’t have as many requirements about how you can use the cash. When you’re considering whether a CAPLine or a private lender is best, consider that you’ll probably have to pay a little higher rates for that freedom. You’ll likely find that the borrowing amounts and terms for an online loan aren’t as good as they will be for CAPLine—but for some businesses, an online loan may still the right choice overall.

If you would like to see what is out there in the world of online lenders, take a look at our business line of credit comparison page. You can also find longer reviews on online lenders such as Kabbage, OnDeck, and BlueVine if you want to do even more research on your options.  It never hurts to shop around!

Quickly compare top traditional line of credit options:
Lender Borrowing Amount Draw Term Draw Fee APR Next Steps

$6K – $100K 6 months None Starts at 13.99% Apply Now

$2K – $5M Varies Varies Varies Apply Now

$5K – $5M 6 months 1.50% per draw 21% – 65% Apply Now

$1K – $100K 12 weeks None 12% – 54% Apply Now

Final Thoughts

While CAPLines may be among the more complex funding programs offered by the SBA, this form of financing can provide many benefits to businesses that meet requirements and would benefit from a revolving line of credit. Hopefully, now that you have more information at your disposal, choosing what type of small business loan to focus on should feel less overwhelming.

What’s Next
    • Calculate the cost of your loan
    • How to qualify for SBA loan
    • Latest SBA loan rates, updated monthly
Borrower requirements:
• Free loan aggregation service; requirements vary by area and lender.
Compare offers
Learn more about the Community of Lenders

The post What Are CAPLines? 4 SBA Lines of Credit You Need to Know About appeared first on Merchant Maverick.

“”

The 3 Types Of SBA Loans Business Owners Should Know About

Small businesses represent the American Dream. A successful small business doesn’t translate to success for just one person — small businesses fuel local economies and provide jobs. When small businesses have the chance to grow and thrive, everybody wins. And that’s why organizations like the Small Business Administration exist.

The Small Business Administration, or SBA, is a government agency that provides the tools and resources needed to help business owners succeed. From training sessions to educational materials, the SBA provides resources and serves as an advocate for small businesses. The SBA has also become known among entrepreneurs for one big piece of the small business puzzle: financing. Through its loan programs, the SBA provides affordable and flexible loan options for everything from expansions to new business acquisitions.

If you’re ready to take your small business to the next level and you need the capital to get there, you can’t go wrong obtaining funding through an SBA loan program. But where do you begin?

Let’s start by learning more about the different types of SBA loans. Once you have a good base of knowledge, you’ll be better able to select and apply for the program that’s right for you.

What Are SBA Loans?

The SBA doesn’t loan money directly to small businesses. Instead, the SBA works with intermediaries to provide low-interest loans with competitive terms to small businesses and startups. These intermediaries could be traditional banks, private lenders, credit unions, or even nonprofit organizations.

The SBA has created a set of standards upheld by its intermediaries to keep loans affordable for small businesses. This way, borrowers can expand and build their businesses without facing high interest rates, daily draws, or other drawbacks they might encounter with more expensive forms of credit. The SBA backs large percentages of the loans given through its programs — anywhere from 50-85% — lowering the risk involved and making lenders more apt to lend to small businesses.

The SBA offers several programs of interest for small business owners. Let’s explore the different types of SBA loans to determine which best fits the needs of your small business or startup.

The SBA 7(a) Loan Program

The SBA 7(a) program is the most well-known among SBA loans. SBA 7(a) loans are extremely popular because of the great terms and flexibility they provide. However, there are several different types to consider, each of which comes with different maximum loan amounts, interest rates, and terms. Read on to find out more about each type to determine which is the right fit.

Types Of 7(a) Loans

  • Standard 7(a) Loans: When most people refer to SBA 7(a) loans, this is the program that comes to mind. Through this program, small businesses can borrow up to $5 million. Interest rates are negotiable and maturity terms are typically 10 years or 25 years, depending on how the money is used. The SBA guarantees 75% to 85% of the total loan amount, putting less risk on lenders so they can feel confident in loaning money to small business owners.
  • SBA Express Loans: One of the drawbacks that many potential borrowers find with SBA Standard 7(a) loans is the length of the process from application to approval and funding. The entire process takes, at a minimum, 30 to 90 days. Borrowers who want a fast approval should consider SBA Express Loans. Within 36 hours, the applicant will know whether or not they’ve been approved. While actually receiving the money can still take weeks, it’s very reassuring to business owners to have an approval locked down so they can quit searching for loans and know that they’ve secured funding. The maximum loan amount is just $350,000 through this program, which could be a drawback for anyone seeking more financing. Because the SBA backs only 50% of each loan distributed through the Express program, these loans can be more difficult to obtain, especially for startup businesses.
  • Community Advantage Loans: These loans are very similar to the Standard 7(a) loans given by the SBA. The biggest difference is that the Community Advantage Loan program is reserved for borrowers in underserved communities. This doesn’t just mean small businesses in low-income areas, although those do qualify for this program. Community Advantage loans are also available to women, minorities, veterans, and startups. This program provides opportunities to businesses that may not qualify for traditional financing options. The maximum loan amount under this program is $250,000.
  • Veterans Advantage Loans: Veteran-owned small businesses can get the funding they need through the Veterans Advantage program. Through this program, veterans and service members get to enjoy the same great rates and benefits of the Standard 7(a) loans but with reduced fees. This program offers loans up to $5 million.
  • Export Express & Export Working Capital Loans: Exporters can get funding through the SBA’s Export Express and Export Working Capital programs. Through the Export Working Capital loan program, small businesses can receive up to $5 million in financing. Under the Export Express program, loans up to $500,000 are distributed. Though these loans are smaller, the benefit is that applications are approved within 24 hours.
  • SBA Lines of Credit (CAPLines): SBA CAPLines offer short-term and cyclical funding options for small businesses. Funding of up to $5 million is available with maximum repayment terms of 10 years. There are four different lines of credit available under this program. Seasonal CAPLines are used for accounts receivable and inventory that increase seasonally; Contract CAPLines are used to finance specific contracts; Builder’s CAPLines are used for the construction or renovation costs for commercial or residential buildings; Working CAPLines are a type of revolving line of credit used for recurring, cyclical, or short-term needs and is used by businesses that do not qualify for long-term credit programs.

SBA 7(a) Loan Uses

SBA 7(a) loans are so popular because there are very few limitations. With Standard Loans, Express Loans, Community Advantage Loans, and Veterans Advantage Loans, funds can be used for a variety of purposes, including the purchase of equipment, expansion, the acquisition of a business, or working capital. Export Express and Export Working Capital loans can also be used for just about any business purpose but are limited to usage only by companies that sell goods or services outside of the territorial United States.

As previously mentioned, SBA CAPLines do have limitations in how they are used. Builder’s CAPLines can only be used for direct expenses related to construction or “substantial renovation” to a residential or commercial building. Contract CAPLines can only be used for the costs of specific contracts and can’t be used to purchase fixed assets, pay back taxes, or refinance existing debt. Seasonal CAPLines are used to fund seasonal increases of inventory or accounts receivable, although in some cases it can be used for increased labor costs. Working Capital CAPLines are used for short-term needs and can’t be used for delinquent taxes or floor planning, and there are also limitations for acquiring fixed assets.

SBA 7(a) Loan Rates & Fees

The loan rates and fees for SBA 7(a) loans are extremely competitive with traditional loans. The rates and fees vary depending upon the type of loan selected. It’s also important to note that down payments, collateral, and personal guarantees are typically required for all SBA 7(a) loans. Here’s a look at SBA 7(a) loan base rates and markups:

Loan Amount Less Than Seven Years More Than 7 Years

Up to $25,000

Base rate + 4.25%

Base rate + 4.75%

$25,000 – $50,000

Base rate + 3.25%

Base rate + 3.75%

$50,000 or More

Base rate + 2.25%

Base rate + 2.75%

Standard 7(a) Loans:

The interest rates for SBA 7(a) loans are set by the lender, but all interest rates must fall below the maximum rates put in place by the SBA. For Standard 7(a) loans, the interest rate is based on the current prime rate. Lenders can add between 2.25% and 4.75% to the prime rate, depending upon the total loan amount taken and the repayment terms. For real estate, repayment terms up to 25 years are available. Business acquisitions and equipment financing come with terms up to 10 years. For working capital, the loan maturity is 7 years.

A one-time guarantee fee up to 3.75% may be passed on to the borrower. Additional fees may also be required by the lender, including but not limited to closing costs or referral fees. A prepayment penalty applies when the loan is paid within the first three years when the repayment terms are 15 years or longer.

SBA Express Loans:

The maximum interest rate for SBA Express loans is slightly higher. Lenders can charge the current prime rate plus an additional 4.5% to 6.5% based on the amount borrowed. Terms are the same for SBA Express loans as Standard 7(a) loans. A guarantee fee of up to 3% can be passed on by lenders to borrowers of Express loans, while additional fees including packaging fees and closing costs may also apply.

SBA Community Advantage Loans:

Community Advantage loans have a maximum rate set by the SBA as the prime rate plus 2.75% to 6%. Repayment terms for these loans are similar to Standard 7(a) loans – up to 25 years for real estate and up to 10 years for acquisitions, inventory, equipment financing, and other expenses. Closing costs and fees for appraisals, reports, and other costs may be passed on to the borrower.

Veterans Advantage Loans:

Veteran’s Advantage loans come with the same repayment terms and interest rates as Standard 7(a) loans. The difference is in the guarantee fee, which is reduced by 50% for loans from $125,001 to $350,000.

Export Express & Export Working Capital Loans:

Repayment terms remain the same as other 7(a) loans, while interest rates are set between 4.5% and 6.5% on top of current prime rates. A guarantee fee up to 3% will also be paid and varies based on the term length and amount borrowed.

CAPLines:

Repayment terms for CAPLines are up to 5 years. A maximum interest rate of the prime rate plus 2.25% to 4.75% has been set by the SBA. A one-time guarantee fee between 2% and 3.75% will also be charged, as well as additional expenses similar to other SBA 7(a) loans.

SBA 7(a) Loan Borrower Requirements

There are a few requirements set by the SBA that apply across the board for all SBA 7(a) loans. All businesses must be based in the United States and must be for-profit. All applicants must qualify as a small business with 500 or fewer employees and a net worth below $15 million. Businesses must not be engaged in illegal operations.

Borrowers must have a solid credit history, with a recommended score of 680 or higher. Borrowers should be prepared to offer adequate collateral, including personal real estate if needed. Personal guarantees are required. The applicant must also show a legitimate business need for the loan and must have exhausted other financial options before applying.

All applicants should be prepared to show documentation for ownership, personal and business credit, and financial outlooks. Startups are required to have a solid business plan prepared. Anyone applying for the Veterans Advantage program must have a business that is at least 51% owned and controlled by a veteran, servicemember, reservist, or National Guard member. A current or widowed spouse is also eligible to apply.

Think the SBA 7(a) loan program is right for you? Before you apply, find out everything you need to know about this popular small business financing option.

The SBA CDC/504 Loan Program

The SBA’s CDC/504 loan program is a bit different because instead of working with one intermediary, a borrower works with two: a participating lender and a Certified Development Company.

With these loans, the SBA provides up to 40% of the total cost of a project through a Certified Development Company. A traditional lender, such as a bank or credit union, provides 50% of the total project cost. The borrower is responsible for the remaining 10% of the total project cost. The maximum SBA loan amount distributed through this program is $5 million.

SBA 504 Loan Uses

While there are some limitations, the CDC/504 loan program can be used in a variety of ways to update, expand, or improve a small business. These loans can be used to purchase buildings or land, improve land, renovate facilities, or purchase long-term fixed assets. Debt can be refinanced using these funds provided that the debt is connected to the purchase or renovation of facilities or equipment.

Funds from these loans can’t be used for repaying or refinancing debt (other than the refinancing of debt as described above). It also can’t be used to purchase inventory or for use as working capital.

SBA 504 Loan Rates & Fees

The interest rates for 504 loans are based upon the market rate of 5-year and 10-year Treasury issues. The portion that is funded through a traditional lender will be subject to the lender’s own interest rates. Repayment terms of 10 years and 20 years are available for the SBA-funded portion of the loan. Funding fees, processing fees, and closing fees may also apply and can be financed with the loan.

SBA 504 Loans

Borrowing Amount

No maximum, but the SBA will only fund up to $5 million

Term Lengths

10 or 20 years

Interest Rates

Fixed rate based on US Treasury rates

Borrowing Fees

  • CDC servicing fee, CSA fee, guarantee fee, third party fees (however, most of these fees are rolled into the interest rate or cost of the loan)
  • Possible prepayment penalty

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral required; usually the real estate/equipment financed

Down Payment

10% – 30%

SBA 504 Loan Borrower Requirements

SBA 504 loan borrowers must meet all standard requirements set by the SBA. Borrowers must operate a for-profit business and should not be involved in nonprofit, speculative, or passive activities. Borrowers must show a legitimate need for the financing. They must also find a CDC and additional lender that operates in their area. Collateral is generally required, although typically the assets that are being financed serve as collateral. Personal guarantees are also needed from all applicants and owners of 20% or more. Read on to learn more about SBA 504 loans.

Should I Choose An SBA 504 Loan Or A 7(a) Loan?

Wondering which SBA loan is right for you? Here’s a quick comparison of the two.

504 VS 7(a) Loan Usage

SBA 7(a) Loans SBA 504 Loans
  • Working capital
  • Commercial real estate purchasing
  • Equipment purchasing
  • Purchasing a pre-existing business
  • Refinancing debt
  • 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

504 VS 7(a) Rates & Terms

SBA 7(a) Loans SBA 504 Loans

Borrowing Amount

Max. $5 million

No maximum, but the SBA will only fund up to $5 million

Term Lengths

7 – 25 years

10 or 20 years

Interest Rates

Variable rate of a base rate plus a markup of 2.25% – 6.5%

Fixed rate based on US Treasury rates

Borrowing Fees

Guarantee fee, other fees from lending partners

CDC servicing fee, CSA fee, guarantee fee, third party fees (most fees are rolled into the interest rate or cost of the loan); possible prepayment penalty

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral required; specifics vary based on business and loan use

Collateral required; usually the real estate/equipment financed

Down Payment

10%

10% – 30%

504 VS 7(a) Borrower Requirements

SBA 7(a) Loans SBA 504 Loans
  • For-profit business considered “small” by the SBA
  • Engaged in business in the United States
  • Not in an ineligible industry
  • Strong personal and business credit
  • Strong business financials
  • Strong business plan
  • For-profit business
  • Tangible net worth less than $15 million
  • Average net income less than $5 million
  • Engaged in business in the United States
  • Not in an ineligible industry
  • Strong personal and business credit
  • Strong business financials
  • Strong business plan

The SBA Microloan Program

Small business owners looking for a smaller loan can apply for the SBA Microloan program. Through this program, borrowers can work with nonprofit intermediaries to receive up to $50,000 in low-interest funding.

SBA Microloan Uses

SBA Microloan funds can be used in almost any way to operate or expand a business. Purposes for these loans range from working capital to purchasing supplies and equipment. However, microloans can’t be used for purchasing real estate or refinancing debt.

SBA Microloan Rates & Fees

The interest rates for microloans are based primarily on the intermediary’s cost of funds. The intermediary may charge this rate plus a maximum of 7.75% on microloans exceeding $10,000, or up to 8.5% on loans that are $10,000 or less. The maximum maturity for microloans is six years.

Packaging fees between 2% and 3% may also be charged by intermediaries. Additional fees, including but not limited to credit reports, filing fees, recording fees, or other closing costs, may also apply. Find out more about the rates, terms, and fees of microloans before applying.

SBA 504 Loans

Borrowing Amount

$500 – $50,000

Term Lengths

Up to 6 years

Interest Rates

6.5% – 13%

Borrowing Fees

Possible fees from the loan issuer

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral normally required, but depends on the lender

Down Payment

  • No down payment for most businesses
  • Possible 20% down payment for startups
  • Possible 10% down payment for business acquisition loan

SBA Microloan Borrower Requirements

Microloans are subject to the same standard requirements set by the SBA, including qualifying as a small business. All businesses must be for-profit, although non-profit childcare centers also may apply.

Applicants seeking more than $20,000 must pass the SBA’s “no credit elsewhere” test. This simply means that any borrower must have sought other non-federal means of financing before applying. There must also be a legitimate need for the financing, and it should be proven that the small business is set up for a profitable and successful future.

Collateral may be required, but this decision falls upon the lender. The SBA simply requires the lender to use “prudent lending practices” when determining whether a microloan should be collateralized. Credit is also a consideration and scores should be at least 680 upon applying.

How To Apply For SBA-Backed Loans

business acquisition loan

With so many options, it’s easy to see why SBA loans are the ideal choice for any established small business or startup. Once you’ve found a loan that best suits the needs of your business, it’s time to take the next step and apply for funding.

Before reaching out to a lender, it’s important to make sure that you complete as much legwork on your end as possible. One of your first moves should be to make sure your credit is where it needs to be to qualify. As previously mentioned, a minimum score of 680 is ideal, although higher scores have higher chances of approval. You can easily obtain a free credit report and score online to see where you stand. You can also use your free report to check for any errors that need to be disputed. If there are any negative marks on your report that are accurate, you will need a reasonable explanation for each. Find out more about the requirements needed to obtain an SBA loan.

Once you’ve confirmed that your credit is up to par, the next step is to begin gathering documentation. Requirements vary by lender, but you should expect to provide a minimum of 2 years’ worth of personal and business tax returns, financial statements, business licenses, and financial projections. Startups should have a solid business plan prepared to replace financial documentation that may not be available.

The next step is to find an SBA-approved lender that services your area. Once you’ve found your lender, there is a strong possibility that you will be required to appear in their office. A list of documentation may be provided before your meeting. Some lenders may also allow you to start the application process online or over the phone.

Your lender will go over all required documentation, as well as their interest rates, terms, and other vital information such as down payments and collateral requirements. Make sure that you understand all terms before moving forward in the process. Once you’ve come to an agreement, your application is completed and sent off for approval and underwriting.

At this point, it’s important to understand that the funding process for SBA loans can be lengthy. On average, expect to wait a minimum of 30 to 90 days for your funding. Potential delays may further prolong the process. If you’ve applied for specific programs such as the SBA Express loan program, approval may be received in just days, but additional time will be required to close and fund the loan.

Where Do I Find SBA Loans?

To find an SBA loan in your area, you can visit the SBA’s website for more information. You can use the site’s Lender Match tool to be paired with a lender that can provide the loan you’re looking for. You can also ask for a referral for an SBA-approved lender from your financial institution. Make sure that the lender you choose is authorized to provide the specific type of loan that interests you.

Once approved, the loan will be closed and you’ll receive your funding. The final step is to use your funds responsibly. Remember to always pay your loan based on the agreed-upon terms and use all loan proceeds to further improve or expand your business to elevate your success.

The post The 3 Types Of SBA Loans Business Owners Should Know About appeared first on Merchant Maverick.

“”

How To Apply For An SBA Loan: A Complete Guide

You’re ready to take your business to the next level. Perhaps you want to add to your team of all-stars, or you want to upgrade your equipment with the latest and greatest technology. Maybe you’re a startup and you’re ready to bring that next great idea to life. No matter how you slice it, starting or upgrading your business hinges on one big question: how are you going to pay for it?

Most of us don’t have unlimited amounts of cash at our disposal, so we have to rely on outside help to fund new projects, renovations, and other expensive initiatives to launch and grow our businesses. When it comes to financing, smart small business owners know that you can’t go wrong with a loan from the Small Business Administration.

That’s why you’re here. You’ve heard about the benefits of SBA loans and now you’re ready to get funded. There’s just one problem: you don’t know how to begin when it comes to the application process.

While it may be intimidating, the SBA loan application process isn’t that much different from getting a loan from your bank. However, knowing what to expect before you get started can help the process go much more smoothly and eliminate the hassles and headaches that come with being unprepared.

Take a deep breath and read on to find out how to complete the SBA loan process from start to finish.

The Basic SBA Loan Application Process, Step-by-Step

1. Determine Whether You Meet The SBA’s Lending Requirements

Before you even fill out an application or talk to a lender, the first step to obtaining an SBA loan is to make sure that you’re qualified to receive one. In order to obtain a loan from the SBA, your business must qualify as a small business under the organization’s guidelines. Typically, this means that your business must have no more than 500 employees, although this number could rise based on your industry. Net annual income should not exceed $5 million, while the business’ net worth shouldn’t be more than $15 million.

To be eligible for an SBA loan, the business must also be operated and headquartered in the United States. The small business should be for-profit (although non-profit child care centers qualify for SBA Microloans) and not engaged in illegal activities. Businesses involved in lending, investing, and real estate rentals do not qualify for most programs.

Depending on which loan program you select, there may be additional requirements. For example, only veterans, service members, or the spouses or widows of veterans or service members can apply for the Veterans Advantage program. The Community Advantage program is limited to underserved areas, which include low-income communities and businesses owned by women, minorities, and veterans.

One of the most important factors in the SBA lending equation is your credit report and score. Because SBA loans offer such competitive terms, it should come as no surprise that you need a good credit score to qualify. In general, a minimum score of 680 is required to even be considered for these loans.

Your score isn’t all that comes into play, though. Your full credit report (both personal and business) will be evaluated by a lender to determine if you qualify. Defaults on previous government-backed loans will disqualify you from receiving an SBA loan. Foreclosures or bankruptcies may also prevent you from receiving an SBA-backed loan. Negative items on your report, such as collections or past due accounts, won’t necessarily bar you from receiving a loan, but a valid explanation for each negative item will be required by the lender.

This is why it’s so important to know your score and review your report before even starting the process. It’s easy to obtain a free credit score and report so that you can make sure you qualify and dispute any erroneous items. If you find that your credit score is low, you can begin taking steps toward improving your credit before you apply.

2. Choose An SBA Loan Program

You’ve determined that you fit all of the requirements for obtaining an SBA loan. Now, the next step is to understand the SBA loan programs that are available and which works best for you. Each program has specific rates, terms, and maximum loan amounts, as well as requirements for how the money is used.

You’ll need to evaluate your business needs to decide which program is the best fit.

Loan Program Description More

7(a) Loans

Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.

Review

Microloans

Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.

Review

CDC/504 Loans

Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.

Review

Disaster Loans

Loans used to rebuild or maintain business following a disaster. 

Review

7(a) Loans

SBA 7(a) loans are the most popular among small business owners. This is primarily because of the extremely favorable terms and the flexibility with how funds can be used. With the 7(a) program, loan proceeds can be used toward just about any business expense. This includes purchasing equipment or inventory, acquiring a new business, renovating new facilities, working capital, or even refinancing old, high-interest debt. Standard 7(a) loans have a maximum loan amount of $5 million.

Through the Community Advantage program, underserved communities can receive financing when traditional lending isn’t a good fit. The Veterans Advantage program offers the same great benefits along with reduced guarantee fees. Express loans offer less funding but guarantee an approval response within 36 hours. It’s important to note that loans through the Express program come with a slightly higher but still competitive interest rate than other 7(a) loans.

In general, expect to pay between 7% to 9% interest on standard 7(a) loans. Repayment terms are up to 10 years for most purposes and 25 years for real estate purchases. Startups and established businesses are eligible to apply for 7(a) loans. This program is a good fit for almost any small business because these loans are the most flexible. SBA 7(a) loans are available through SBA-approved lenders, including banks and credit unions. Read more about SBA 7(a) loan programs.

Loan Amount Less Than Seven Years More Than 7 Years

Up to $25,000

Base rate + 4.25%

Base rate + 4.75%

$25,000 – $50,000

Base rate + 3.25%

Base rate + 3.75%

$50,000 or More

Base rate + 2.25%

Base rate + 2.75%

Microloans

Small businesses requiring smaller amounts can apply for an SBA Microloan. Microloans are available through participating nonprofit organizations. The maximum borrowing amount through this program is $50,000. This money can be used for a variety of purposes, including the purchase of supplies, materials, and equipment. It can also be used as working capital. Microloans can’t be used for the purchase of real estate or paying delinquent taxes.

Like other SBA loan programs, SBA Microloans come with competitive interest rates. These rates are based on the intermediary lender’s cost of funds. The average rate is about 7.5%.

These loans are best for startups and small businesses that need smaller loans. This is also an excellent choice for non-profit childcare centers that are ineligible to apply for loans through the 7(a) program. If a microloan program seems like the right fit for your business, read on to learn more.

SBA 504 Loans

Borrowing Amount

$500 – $50,000

Term Lengths

Up to 6 years

Interest Rates

6.5% – 13%

Borrowing Fees

Possible fees from the loan issuer

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral normally required, but depends on the lender

Down Payment

  • No down payment for most businesses
  • Possible 20% down payment for startups
  • Possible 10% down payment for business acquisition loan

504 Loans

The SBA’s 504 loan program is designed for businesses that want to expand or upgrade their facilities or equipment. Funding of up to $5 million is available through the SBA’s 504 program to purchase buildings or fixed assets, to build or update new facilities, or to purchase or improve land. Proceeds can also be used toward refinancing existing debt related to renovating, purchasing, or building new facilities or equipment.

Through the 504 program, the SBA will provide up to 40% of the total project cost through a Certified Development Company. Fifty percent of the project costs must be financed through a traditional lender. The remaining 10% of costs are the responsibility of the borrower. Interest rates for SBA 504 loans are based on 5-year and 10-year Treasury issues. Repayment terms are set at 10 years and 20 years.

Small business owners that wish to update or expand their facilities or equipment are the best candidates for this loan program. If this sounds like you, learn more about the terms, eligibility, and requirements of SBA 504 loans.

SBA 504 Loans

Borrowing Amount

No maximum, but the SBA will only fund up to $5 million

Term Lengths

10 or 20 years

Interest Rates

Fixed rate based on US Treasury rates

Borrowing Fees

  • CDC servicing fee, CSA fee, guarantee fee, third party fees (however, most of these fees are rolled into the interest rate or cost of the loan)
  • Possible prepayment penalty

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral required; usually the real estate/equipment financed

Down Payment

10% – 30%

SBA Disaster Loans

Sometimes, the unexpected happens. Whether it’s a sudden deployment, a natural disaster, or changes within the economy, these unforeseen events can have damaging effects on a business, even leading some owners to shut their doors for good.

The SBA understands these situations and offers various Disaster Loan programs designed to help small businesses weather the storm. These loans include Physical Disaster Loans, Economic Injury Disaster Loans, and Military Reservists Economic Injury Loans.

Through the Physical Disaster Loan program, businesses and nonprofit organizations can receive up to $2 million for the repair or replacement of damaged property. This includes real estate, fixtures, inventory, and equipment used to operate the business. Loan proceeds can be increased to offer protection from future disasters, covering losses that are uninsured or under-insured and providing business owners with an extra level of protection. Repayment terms can be set up to 30 years, and interest rates are set at 4% and 8%.

Through the Economic Injury Disaster Loan, businesses and nonprofit organizations can apply for up to $2 million if economic injury occurs. This money can be used to cover financial obligations that would have been paid by the business had it not been affected by the disaster. Repayment terms are up to 30 years with interest rates set by the SBA at 4% and 8%.

The Military Reservist Economic Injury Disaster Loan is designed for reservists who have been called for active duty. These loans are used for the working capital needed to pay business expenses until the employee returns from active duty and business operations recover. They cannot be used for refinancing debt, business expansions, or to cover income or profit losses. The total amount of the loan is based on the actual economic injury as determined by the SBA. Interest rates for these loans are set at 4% with a maximum repayment term of 30 years.

Term Rate/fee

Borrowing Amount

Maximum $2 million

Term Lengths

  • Max 30 years if no credit available elsewhere
  • Max 7 years if credit available elsewhere

Interest Rates

  • Maximum 4% if no credit available elsewhere
  • Maximum 8% if credit available elsewhere

Fees

None from the SBA; possible fees from outside agencies

3. Decide On An SBA Partner Lender

Once you’ve narrowed down your loan options and have selected the program that’s right for your business, you’ll need to find an intermediary. SBA loans do not come directly from the SBA to the borrower. Instead, these government-backed loans are provided through approved lenders including banks, credit unions, private lenders, CDCs, and nonprofits. Because the SBA guarantees at least 50% of loan proceeds (and in most cases, 85%), lenders are more willing to provide these loans to qualified small businesses.

This doesn’t mean that you can just walk into any bank and receive an SBA loan. You have to find an SBA lender partner that services your area. There are a few different ways that you can do this.

The first thing you can do is consult any financial institution with which you have a working relationship. Explain the type of SBA loan that you’re looking for and ask for a referral for local SBA intermediaries.

You can also visit the SBA website, which offers a Lender Match service. Simply input a small amount of personal information, and this tool will match you to a lender that services your area.

SmartBiz is another option you can consider. You can quickly and easily find, apply for, and receive an SBA loan through this service. This online loan marketplace can also match you up with other sources of funding if you don’t qualify for an SBA loan. There are also loan matching services and online brokers that can help you find a lender and offer support through the application process.

4. Compile An SBA Loan Application

Once you’ve found an SBA-approved lender, it’s time to dive into the actual application process. This process can be a little intimidating, but it doesn’t have to be difficult provided you know what to expect going in. The most important thing is to make sure you come prepared with the proper documentation.

SBA borrower information forms are required for every partner, director, managing member, or owner of the company. All owners with at least a 20% stake in the company should also be prepared to sign a personal guarantee and have their resumes available. Personal financial statements will also need to be provided.

For the business, an income statement, balance sheet, and federal income tax returns for the last three years must be provided. A cash flow projection for a period of one year will also need to be included with the application. Business and personal credit reports will also be used to determine your creditworthiness.

For collateral requirements, real estate appraisals, lease agreements, and environmental reports are required. Additional documentation including Articles of Organization, all business licenses, and information pertaining to judgments and lawsuits may also be needed. Affiliated and subsidiary business information will need to be provided during the application process.

Before meeting with the lender, you can inquire about any additional documentation that is needed so that it can all be compiled prior to filling out the application.

5. Be Available For Follow-Up Questions

Once the application has been submitted for your SBA loan, the next step is to wait for your approval. Depending on the loan you’ve applied for, approval can take several weeks, although some options — like SBA Express loans — will be approved within 36 hours.

During this time, you should communicate with your lender and make yourself available for any additional follow-up questions. More documentation may be required by the lender, so make sure that you deliver this in a timely manner to avoid delays in the application process. Typically, you should expect the entire process from application to funding to take 30 to 90 days.

How To Apply For An SBA 504 Loan

The SBA 504 loan process is a bit different than the standard SBA loan process. More documentation is required for these loans. This includes but is not limited to estimates, quotes, and costs from vendors and contractors that will be working on the funded project. For real estate purchases, an independent appraisal is required.

Because the borrower will also be working with another lender, a letter of intent from the lender will need to be submitted with the SBA application. The lender will also need to provide a reason for why it will not provide financing for the entire project.

If debt is to be refinanced using 504 loan proceeds, the borrower must provide information on the current debt, including lien instruments and account transcripts.

How To Apply For An SBA Loan To Buy A Business

When SBA loan proceeds are used to purchase a business, the process does not differ much from what it would be when applying for any other loan. Credit reports and financial documentation will be required to determine eligibility. However, there are a few additional documents needed for approval of the loan.

If real estate is being purchased using the loan, business, stock, and asset purchase agreements are required. A real estate purchase agreement is also needed and will be submitted along with other documentation and the SBA loan application.

A business plan is also typically required. The applicant must also show that they have experience in the industry of the business they plan to acquire.

How To Apply For An SBA Loan For A Startup

If you’re a startup business (defined by the SBA as a business that has been in operation for 2 years or less), there are a few different requirements for applying for an SBA-backed loan.

There are certain documents that startups simply won’t have, such as three years’ worth of business income tax returns. However, alternative documentation can be used to qualify a new business, including a detailed business plan, a cash flow analysis, and financial projections of at least one year.

To qualify for SBA loans, startups must be able to show through this documentation that they will be successful and profitable, despite their short operating history. The applicant must also show proof of industry experience.

How To Apply For An SBA Loan For A Franchise

SBA loans are available for franchises. In many cases, loans for a franchise are easier to obtain than for the purchase of other new businesses because the franchise has a proven business model.

The organization has its own SBA Franchise Directory. This directory has a listing of all brands that are eligible to receive financing from the SBA. This list includes everything from restaurants to dry cleaners and insurance agencies. All brands that meet the FTC definition of a franchise are included on the list.

Some franchises do not fit under the FTC’s definition of a franchise. In these cases, the SBA has the option to add brands to the directory if it meets other requirements.

Financing, including the 7(a) standard loan, can be obtained to purchase a franchise. The same documentation for other SBA loans applies. In addition, agreements between the franchisor and franchisee will also need to be produced, as well as other documentation.

SBA Loan Application Process FAQs

How long does it take to get an SBA loan approved?

The time it takes to get approval on your SBA loan varies. Gathering the needed documentation may take weeks, while the approval process itself can several weeks or even months, especially if more information is required.
Applicants who need approval in a hurry can turn to the SBA Express loan. Even though this provides lower maximum funding than other SBA loan options, approval is guaranteed within 36 hours. However, it’s important to note that the actual underwriting and funding of the loan will take additional time.

Where do I apply for an SBA loan?

To apply for an SBA loan, you will need to work with an SBA-approved lender. Use the SBA Lender Match tool, a loan broker like Lendio, or consult with your existing financial institution to find a lender near you.

You can also use the SmartBiz marketplace online to prequalify and apply for SBA loans. If you don’t qualify, other lending options are available through SmartBiz.

I have bad credit. Can I still be approved for an SBA loan?

Your creditworthiness is an important factor in getting approved for an SBA loan. If you have a credit score that falls below 680, it’s unlikely that you’ll be approved.

If you need a loan but don’t qualify for an SBA loan, don’t worry – you have options. The first thing to do is begin working on your credit. Obtain your free report and score, then follow these helpful hints for boosting your score.

In the meantime, you can also check out your other business loan options. Online small business loans can be obtained with credit scores as low as 500. While the terms may not be as favorable as with SBA loans, there are still some great options out there that will help you get the financing you need today.

What if I need assistance with my SBA loan application?

Navigating the SBA loan application process can be difficult, but you don’t have to do it alone. If you have questions about completing your loan application, you can always ask your SBA-approved lender. If you haven’t yet found a lender to work with, SCORE is a great resource. This nonprofit organization provides resources and services including free business mentors that can help you through every step of the process.

I don’t qualify for an SBA loan/my application was rejected. What are my options?

If you don’t qualify for an SBA loan or your application was rejected, you’re not alone. SBA loans are extremely competitive and getting this type of funding can be difficult. However, this doesn’t mean that you’re stuck without the financing you need. Instead, you can apply for a non-SBA business loan.

Online business loans have less stringent requirements. Terms vary depending on the lender you work with and your creditworthiness. Installment loans, short-term loans, lines of credit, credit cards, and other financing options are available through online business lenders. To find the loan that’s right for you, check out this comparison of the most popular small business loans.

Final Thoughts

SBA loans are a great option for small business owners, but the application process can be frustrating when you don’t know what to expect. Being prepared, gathering your documentation in advance, and knowing what to expect beforehand can help simplify the process, putting you on the path to financing for your small business.

The post How To Apply For An SBA Loan: A Complete Guide appeared first on Merchant Maverick.

“”

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.

“”

Top Business Credit Card Balance Transfer Offers

Sometimes you’ll need to transfer a previous credit card balance when getting a new card. However, not every card is made equal when it comes to transferring in an old balance. Some add on extra transfer fees or put a cap on how much you can transfer. Others may even tack APR onto balance transfers. Unfortunately, it’s not always easy to figure out the best credit card options when it comes to transferring a balance.

That’s why we’ve picked out some of the top balance transfer credit card offers for business owners. Read on through to find out which card could be best for you.

Top Business Credit Cards For Balance Transfers

Best Overall Pick: American Express Blue Business Plus

American Express Blue Business Plus



Compare

Annual Fee:


$0

 

Purchase APR:


12.99% – 20.99%, Variable

With a 0% intro APR for the first 15 months on purchases and balance transfers, this card from American Express offers the longest introductory period currently available. That means you’ll have plenty of time to pay your balance without racking up interest charges. For rewards, it provides two points per $1 up to $50,000 spent, and then one point per $1 after you hit that cap. Those points are usually worth $0.01 but may wind up higher or lower depending on how they are redeemed. Keep in mind that the balance transfer fee sits at 3% (with a minimum fee of $5) although that’s relatively normal.

For an in-depth look, spend some time with Merchant Maverick’s complete review.

Best For Those With Fair Credit: Capital One Spark Classic for Business

Capital One Spark Classic For Business



Visit Site

Annual Fee:


$0

 

Purchase APR:


24.74%, Variable

Because Capital One markets this card towards average credit applicants while packaging it with unlimited 1% cash back on all purchases, Spark Classic is a solid choice for those with fair credit. As long as you manage your account responsibly, you’ll help build up your credit score. Increasing your credit score could potentially allow you to switch to a card with better rewards. The Spark Classic for Business also comes with no balance transfer fee, no annual fee, and no foreign transaction fee.

Read our ultimate guide to learn more about improving your business credit score.

Best No Balance Transfer Fee: Capital One Spark Cash for Business

Capital One Spark Cash For Business


capital one spark cash select
Visit Site

Annual Fee:


$95 ($0 the first year)

 

Purchase APR:


18.74%, Variable

With its unlimited 2% cash back on all purchases and no balance transfer fee, this card certainly appeals to those looking to transfer debt. Capital One also includes a welcome offer of $500 cash if you spend at least $4,500 in the first 3 months of opening your account. However, there is a $95 annual fee, although it is waived the first year. To qualify for this card, you’ll need to have excellent credit; you’re required to have had a loan or credit card for three-plus years with a credit limit in excess of $5,000 before getting a Spark Cash for Business card.

For a deep dive on Capital One’s card, take a look at Merchant Maverick’s full review.

Best Introductory APR Offer: American Express Blue Business Plus

American Express Blue Business Plus



Compare

Annual Fee:


$0

 

Purchase APR:


12.99% – 20.99%, Variable

While this card also made the list at best overall, its 0% APR for 15 months is hard to beat when looking at introductory APRs. Because that 0% intro APR is applicable to both purchases and balance transfers, this card is especially attractive for those with balance transfers. Do note, however, that American Express does attach a pretty normal balance transfer fee of 3% or $5—whichever is higher.

Get the full rundown on the American Express Blue Business Plus with our in-depth review.

Best For Cash Back: Chase Ink Business Cash

Chase Ink Business Cash



Apply Now

Annual Fee:


$0

 

Purchase APR:


14.99% – 20.99%, Variable

The Ink Business Cash card offers a 0% intro APR on both purchases and balance transfers for the first 12 months. On top of that, Chase really packs some hefty rewards into their Ink Business Cash credit card. These rewards include 5% back on purchases at office supply stores and on internet, cable, and phone purchases up to a combined $25,000 each account anniversary year. You can also earn 2% back at gas stations and restaurants up to a combined $25,000 each account anniversary year. For everything else, you’ll get 1% cash back.

Head on over to Merchant Maverick’s in-depth review for more details on Chase’s card.

Why Would I Need To Do A Balance Transfer?

Two worried friends having problems buying on line with credit card and a laptop sitting on a couch in the living room at home

The most obvious reason for doing a business credit card balance transfer is if you’ve found a card with a lower APR or better rewards. You may also only want to transfer a certain amount of your debt in order to lower your per-card utilization ratio—potentially increasing your credit score.

Can I Use A Personal Card For A Balance Transfer?

As we mentioned in our guide to using personal credit cards for business expenses, you’ll want to separate personal and business expenses when possible. However, if you’ve already accrued some business debt on a personal card, you can transfer that debt onto your new business card. Doing this will help completely separate your personal and business expenses.

What Do I Need To Qualify & Be Approved?

Approval is dependant on the card and the issuer. Each issuer has their own requirements, but they’ll primarily look at your debt service coverage ratio (DSCR) and—most importantly—credit score. Every financial institution has their own standards, but for the most part, a credit score of 600 – 670 is considered “fair”, 671 – 750 is considered “good” to “very good”, and a score of 751 – 850 is considered “excellent”.

Don’t know your credit score? Visit a comparison of our favorite sites to check your credit score for free. Unsure how to calculate your DSCR? Check out our calculation guide.

What If I Don’t Meet The Necessary Qualifications?

If you’re struggling with your credit score, visit the Merchant Maverick guide to improving your business credit score. Or head over to our do’s and don’ts of business credit cards if you still need to learn the basics. You may also be able to consolidate your debt with a short-term loan; read up on the merchant’s guide to short-term loans for more information.

The post Top Business Credit Card Balance Transfer Offers 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.

“”