A bankruptcy in your past doesn’t necessarily preclude you from getting a small business loan, but it might make it more challenging. While not all lenders have the same requirements after bankruptcy, it’s unlikely a borrower would qualify within the first year. Many lenders will require at least one year of improving credit history following the disposition of a bankruptcy.
That all depends upon the type of loan you’re looking for. To qualify for an SBA loan you’ll need a business plan. While other lenders might not require a formal business plan, they will ask questions about loan purpose, how this loan might positively impact profitability, etc. Whether or not a lender requires a business plan, it’s a good idea to go through the exercise so you can articulate why you are looking for a loan and the benefit you expect to gain from the capital.
A line of credit is a revolving form of credit that provides a predetermined capital limit and can be accessed as needed. Unlike a traditional term loan, all or part of the line can be accessed at any time up to the predetermined limit. Interest is only paid upon the amount actually used. You can read more about a business line of credit in our Business Owners’ Guide to a Business Line of Credit.
Technically factoring is not a loan; it is the purchase of future receivables. A third party, known as a factor, purchases a company’s invoice(s) or purchase order(s) at a discount giving a business owner access to a percentage of that invoice or purchase order upfront, instead of when the invoice is paid. The balance, minus the agreed upon fees or discount, is paid to the business owner once collected by the factor.For example, if you had an invoice for $10,000, using a factor (or factoring that invoice) would allow you to access a percentage now, and the balance, minus the factor’s fee when the invoice was paid. Every factor is a little different, but let’s say the factor paid you $8,000 now and the factor’s fee was 6%, the transaction would look like this:$8,000 today + $2,000 – $600 (factor fee) when the invoice was paidBasically, you sold the $10,000 invoice for $600 to access the capital now, instead of later.You can read more about factoring in our Business Owners’ Guide to Factoring.
Collateral is any asset or assets, which can be offered by a borrower to secure a loan. Should a borrower default, the lender can take possession of the asset, or assets, to satisfy the loan. You can read more about collateral in our Business Owners’ Guide to Term Loans.
It’s common practice for lenders to require a personal guarantee from the business owner(s) to protect the lender should the business default on the loan. Lenders do this to mitigate the risk of lending to small businesses, and the guarantee is often a requirement by the lender before offering a loan. In the event of a default, a personal guarantee gives the lender additional options to collect the debt.
A business loan is a type of loan designed for businesses to help them finance their operations, payroll, equipment and expansion opportunities.
To qualify for a business loan, lenders typically look at your credit score, time in business, and your business bank statements to evaluate cash flow. Depending on the lender, they may ask for additional information during the underwriting process.
A personal credit score is a reflection of how someone repays their mortgage, auto loans, or other personal obligations and is typically demonstrated in a score from 300 to 850. The higher the score the better. A business credit profile reflects how business owner meets their business financial obligations. While there is no universal business credit score, some of the bureaus score different business behaviors to represent creditworthiness. The three primary personal credit bureaus are: Experian, Equifax, and Transunion. The three primary business credit bureaus are: Dunn & Bradstreet, Experian, and Equifax. Learn more about business credit and personal credit in our Business Owners’ Guide to Business Credit and our Business Owner’s Guide to Personal Credit.
There are various types of business funding options, including bank loans, business lines of credit, equipment financing, crowdfunding, venture capital, angel investors, and grants.
Typical documents include business financial statements, tax returns, bank statements, business plan, proof of collateral, legal documents, and personal financial information.
The funding amount depends on several factors such as the type of funding, your business's financial health, creditworthiness, industry, and the lender's criteria. It's best to consult with lenders or financial advisors to determine the potential funding amount.
Eligibility criteria can vary based on the type of funding, but common factors include the business's credit score, revenue, time in operation, industry, collateral, and the personal credit history of the business owner.
Approval times can vary depending on the type of funding and the lender's process. Some loans can be approved within a few days, while others may take several weeks or longer for more complex funding options.
Interest rates for business loans can vary based on factors such as the lender, loan type, loan amount, creditworthiness, and the term of the loan. It's important to shop around and compare rates from different lenders.
Repayment terms can range from a few months to several years, depending on the type of loan. Short-term loans typically have terms of 3 to 18 months, while long-term loans can extend to 5 to 25 years.
While it may be more challenging to secure funding with bad credit, there are alternative lenders who specialize in providing financing options for businesses with less-than-perfect credit. However, the terms and interest rates may be less favorable.
Business funding can be used for various purposes such as working capital, inventory purchase, equipment acquisition, expansion, marketing campaigns, hiring employees, research and development, or debt consolidation.
Yes, there are grants available for small businesses from government agencies, nonprofit organizations, and foundations. However, the availability and eligibility criteria for grants can vary, and competition can be high.
Repayment options can vary depending on the type of funding. Common repayment methods include fixed monthly installments, flexible payments based on revenue, or balloon payments at the end of the term.
Collateral requirements can vary based on the lender and type of funding. Some loans may require specific collateral, such as real estate or equipment, while others may not require collateral but rely on creditworthiness and business performance.
The funding process duration can vary depending on the type of funding and the lender's procedures. It can range from a few days to several weeks, depending on factors such as the complexity of the application and the lender's efficiency.
Some lenders may impose penalties or fees for early loan repayment. It's important to review the terms and conditions of the loan agreement to understand any potential penalties and negotiate favorable terms if possible.
Missing a loan repayment can have consequences such as late payment fees, a negative impact on your credit score, and potential legal actions. It's crucial to communicate with the lender if you anticipate difficulties in making a payment. Q: Can I use the funding for debt refinancing?
In some cases, business funding can be used for debt refinancing. It's essential to check with the lender or financing provider to determine if refinancing existing debt is allowed under the terms of the funding agreement.
While not all funding options require a business plan, having a solid business plan can significantly enhance your chances of securing funding. It demonstrates your vision, market understanding, and financial projections, which lenders often consider in their evaluation process.
Interest rates for business loans can vary depending on factors such as the type of funding, creditworthiness, term length, and prevailing market conditions. Rates can range from a few percentage points to double-digit figures.
Credit score requirements vary depending on the lender and type of funding. While some lenders may have strict credit score criteria, others may consider other factors such as business revenue and performance.
Yes, there are funding options available for startups, although the criteria may be different compared to established businesses. Startups may need to provide a strong business plan, demonstrate market potential, or seek alternative funding sources like angel investors or crowdfunding.
Businesses with limited operating history can explore funding options such as personal loans, business credit cards, microloans, grants for startups, or alternative financing methods that consider factors beyond traditional credit history.
To enhance your chances of approval, it's important to maintain a good credit history, prepare accurate financial statements, have a solid business plan, demonstrate market potential, and explore various funding sources to find the best fit for your needs.
Yes, governments at local, state, and national levels often provide programs and incentives to support business funding. These can include grants, low-interest loans, tax credits, and assistance for specific industries or disadvantaged groups. Researching and applying for these programs can be beneficial for accessing additional funding opportunities.
Business lines of credit typically have flexible repayment terms. The funds can be used and repaid repeatedly, with interest charged only on the amount borrowed. Minimum monthly payments are usually required, and the credit limit replenishes as payments are made.
While a previous bankruptcy or financial difficulties can impact your eligibility for traditional funding, there are alternative lenders who specialize in working with businesses in similar situations. They may consider factors beyond credit history and evaluate your current business viability.
Calculating the funding amount depends on factors such as business goals, expansion plans, operational costs, inventory needs, marketing campaigns, and cash flow projections. Conducting a detailed financial analysis and consulting with financial advisors can help estimate the appropriate funding amount.
Yes, funding options are available for franchise businesses. Lenders may have specific programs tailored to franchise financing, considering factors such as the franchise brand, business model, and the franchisee's financial position.
Debt financing involves borrowing funds that need to be repaid with interest over a specific period, while equity financing involves raising capital by selling a portion of ownership in the business. Debt financing accrues interest and requires regular repayments, whereas equity financing provides capital in exchange for a share in future profits.
Yes, you can explore and apply for multiple funding options simultaneously to increase your chances of securing funding. However, it's important to carefully manage your applications, meet requirements, and consider potential implications on your credit history.
Small business loan terms can vary, but they often range from one to five years. However, specific loan terms depend on factors such as the lender, loan purpose, loan amount, creditworthiness, and the borrower's ability to repay.