Which business loans can I get with bad credit? - Augusta Free Press

Which business loans can I get with bad credit? - Augusta Free Press


Which business loans can I get with bad credit? - Augusta Free Press

Posted: 30 Mar 2020 12:00 AM PDT

small business

(© fizkes – stock.adobe.com)

Are you trying to start a business but have bad credit? The system we use to decide whether someone is financially responsible is very flawed. Everyone is assigned a credit score, which is impacted by their financial history. While in theory this makes sense, it does not properly account for context. It is possible that you were unemployed a few years ago and went through severe financial difficulties. During this time, you may have defaulted on loans. That does not necessarily say anything about your current circumstances.

Unfortunately, no matter what the reason you have a bad credit score, it is going to impact your chances of getting a loan with a reasonable interest rate. This is even true if the loan is not for your personal needs but for your business. You may be in the perfect position to start a business, but your credit history does not reflect this.

The good news is that there are business loans for people with bad credit. If you are in this situation, these are 3 of your best options.

1. Short-term business loans

One of the easiest ways to get a loan for your startup with bad credit is to consider short-term business loans. Most business loans can be paid back over a long period, providing a timeframe in which your business can take off. But if the amount of money you need can be paid off within two years, or you are confident you will make quick profits, a short-term business loan can work for you.

Short-term business loans are less risky for lenders and you can, therefore, qualify even with a poor credit score. However, you will be saddled with high interest rates. Make sure you calculate the potential consequences carefully. The last thing you want is to struggle to even pay back the interest.

2. Secured loans

Ideally, your business will not be tied too closely to your personal life. However, if you have bad credit, you may have to take a secured loan. A secured loan requires you to designate an asset as security that will be seized if you fail to fulfill the repayment terms. Because there is less risk to the lender, you can get a lower interest rate this way, and your credit will not be that big a factor in qualifying for the loan.

You do have to be very careful with secured loans, as a business setback could subsequently cause all sorts of problems in your personal life. Only apply for a secured loan if you have no doubt you will be able to consistently pay it back.

3. Small business grant

Ideally, you will not have to finance your business with a loan but will receive a small business grant instead. Certain fields have grants set up, both by government and private companies, to help startups with great potential get off the ground. Find out what grants are available for businesses in your field. Check with the Small Business Administration (SBA), to find out if they can help.

What to watch out for

When applying for a business loan with bad credit, you need to be very careful not to get drawn in by predatory lenders. Because you have fewer options, some loan companies will offer attractive deals with incredibly high interest rates or unfavorable repayment terms. Any company that seems too eager to give you a loan should raise red flags. Also, do not take anything they tell you for granted. Make sure to research whether the company is reputable and how other borrowers have fared.

A new business may be the perfect opportunity for you to make your fortune. Even if you have bad credit, there are options for you. As long as you are confident in your concept and your ability to carry it out, there is no reason you should not succeed.

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Small Business Loans Potentially Overwhelm Banks with Demand - The New York Times

Posted: 02 Apr 2020 09:30 PM PDT

[Read our Coronavirus Relief Small Business F.A.Q.]

Small business owners, desperate for help amid the economic meltdown wrought by the coronavirus pandemic, are eagerly awaiting the start of a $349 billion government relief program.

But just one day before the program's launch on Friday, the banks and other lenders that the government is relying on to fund loans and vet applicants were still waiting for much of the information they need to participate. They are also nervous about how they — and the government — will handle what is expected to be a huge crush of demand.

"The response is overwhelming — it's unlike anything I've ever seen in my career," said Craig Street, the chief lending officer of United Midwest Savings Bank, a community bank in Columbus, Ohio. "We're talking about attempting to do 10 times our normal monthly loan volume, and maybe more than that."

The so-called paycheck protection program, part of the $2 trillion stimulus package enacted last week, offers companies and nonprofits with up to 500 workers a low-interest loan to cover up to two months of payroll and other expenses. Most — and in some cases, all — of the loan will be forgiven if the borrower retains its workers and doesn't cut their wages. (The government will repay lenders for the forgiven portions of the loans.)

That's an appealing deal for many companies that would otherwise be leery of taking on debt in the midst of a global crisis. Jason Dolmetsch, the president of MSK Engineering & Design in Bennington, Vt., said he was eager to apply. His engineering firm and its affiliated architectural company are trying to hold on to their 23 workers despite a rash of canceled and postponed projects.

When he called his business's banker on Monday, he was told to be patient and wait. The bank had no information yet about how the program would work.

Late Tuesday, the Treasury Department and the Small Business Administration released an overview for borrowers and a sample loan application. The S.B.A., which is backing the loans, has waived most of its usual requirements — the loans do not require collateral or detailed financial records — and is encouraging lenders to take applications digitally and make quick decisions.

"This will be up and running tomorrow," Treasury Secretary Steven Mnuchin said on Thursday at a White House briefing. He added that loan checks could be disbursed "the same day" that borrowers applied.

But on Thursday evening, lenders were still waiting for technical information about how to underwrite the loans — which will be break even, at best, for most lenders — and collect reimbursement on those that qualify for forgiveness. A trade group, the National Association of Government Guaranteed Lenders, had to postpone a training call for 1,500 lenders on Thursday because it did not have the needed information from the S.B.A.

"I've asked for the information twice today, and I still have nothing," Tony Wilkinson, the group's chief executive, said on Wednesday. "I worry that they're asking lenders to make loans without the information they need to understand the rules of engagement."

Bank lobbyist groups have warned the Treasury Department that the program as designed will not be workable, expressing alarm about their own legal liability as they try to rush money to borrowers and keep tabs on potential fraud. The Independent Community Bankers of America sent a letter to Mr. Mnuchin on Wednesday complaining that guidelines calling for low-interest loans could mean "unacceptable losses" for lenders.

S.B.A. representatives did not respond to questions about when guidance for lenders would be available.

Although the government has scrambled to pull aid together quickly, the program's slow rollout has frustrated business owners facing a daily fight to salvage their companies. Paul Caragiulo is an owner of a group of restaurants in Sarasota, Fla., that employ around 150 people. He is loath to lay off anyone — even though his restaurants' sales have cratered — but he's also hesitant about borrowing what could be millions of dollars from a program whose details are being worked out on the fly.

The information sheets posted by the Treasury Department and the S.B.A. have not reassured him. "Those are bullet points, not term sheets," he said. "We're not used to having debt, and we don't look at that lightly."

The Trump administration has said it wants the paycheck protection loans to be easy to obtain; a sample application posted on Tuesday is a four-page form that can be completed in less than 10 minutes. But the fine print contains a line that gave Mr. Caragiulo pause: Borrowers must promise to buy only American-made equipment and products "to the extent feasible."

Mr. Caragiulo, who uses Italian pizza ovens, said the requirement seemed like an absurd bureaucratic tripwire. When asked about it, an S.B.A. spokeswoman pointed to a 1992 law that requires the agency to "encourage" business owners receiving financial help to buy American goods. She did not respond to questions about how — or if — that will be enforced.

Other federal small business aid efforts have been generous but chaotic. A program offering low-interest disaster loans funded directly by the government has already had more than 100,000 applicants, according to one person familiar with its operations.

The S.B.A. started taking applications weeks ago, but last Friday's stimulus bill added a new sweetener: Applicants, including those who are rejected for loans, are eligible for up to $10,000 in cash grants. (The funds are described on the S.B.A. website as a "loan advance," but an agency spokeswoman confirmed that it does not have to be repaid.)

Abninder Mundra, who owns a franchise of the UPS Store in Portola Valley, Calif., applied for a disaster loan on March 20 and was approved four days later for $210,000. Then the stimulus bill introduced the grants. Mr. Mundra said an S.B.A. representative had told him to fill out a second loan application if he wanted the grant funds. He was still waiting for both his disaster loan check and a response to the grant application.

Mr. Mundra said he could afford to wait a few weeks and was grateful for the aid. He also plans to seek a paycheck protection loan as soon as his bank starts taking applications. He had to cut his three employees' hours to offset a drop in foot traffic, and hopes the loan will help restore them.

"I think the government really understood that small businesses are the backbone of the economy," he said. "If we stop employing people, they won't have money to pay their bills."

But with job losses already setting records and certain to worsen, lenders fear that the $349 billion Congress allocated for the paycheck program will quickly run out. Senior officials from the Treasury and S.B.A. told reporters on Tuesday that they were prepared to ask Congress for more money if needed.

Jim Donnelly, the chief commercial officer of Bangor Savings Bank in Maine, said his small staff was working around the clock to accommodate the pent-up demand. In a typical year, his bank handles hundreds of business loans. He expects to process thousands in the coming months.

And even though his bank was still waiting for critical technical information, it planned to start taking loan applications on Friday.

"We have local businesses like restaurants that have shut down and are looking at these loans as a way to reopen their doors," he said.

Many of the nation's largest banks said they planned to offer the loans, though some will restrict which applicants they will work with.

JPMorgan Chase, for example, said it would make the loans available to customers with Chase business checking accounts as of Feb. 15. Bank of America and Citi both said they planned to participate but did not yet have details.

The Treasury has encouraged non-bank lenders to also offer the loans, but some that want to do so say the process has been maddening. Kabbage, one of the biggest online lenders, said the system for becoming an approved lender was opaque.

Mr. Street, at United Midwest Savings Bank, was also desperate for more information, including details about how thoroughly banks are expected to scrutinize potential borrowers. Any choice involves trade-offs: Quick approvals and cash disbursements raise the risk of mistakes and borrower fraud, but rigorous underwriting takes time that desperate business owners and overtaxed bankers don't have to spare.

Mr. Street hopes the S.B.A. and the banking industry's regulators will give lenders leeway to err on the side of speed.

"We're trying to set things up so that we can crank these things out," he said. "We had calls starting Monday morning from people who wanted to borrow right away. It was hard telling people they had to wait. Nobody can afford to wait."

Small businesses seeking loans to cover COVID-19 losses face confusion, frustration and uncertainty - Marketplace

Posted: 14 Apr 2020 06:41 AM PDT

On the ground, there is some confusion about the government's $350 billion in loans to get smaller businesses through the COVID-19 downturn.

Banks are unsure about the rules and the risks. Many small businesses are bewildered.

Amanda Ballantyne, executive director of one of the national small businesses advocacy groups, Main Street Alliance, says the federal government has made things too complex.

"Where we actually needed something very simple to support small businesses," Ballantyne told "Marketplace Morning Report" host David Brancaccio. "And now small businesses themselves and, frankly, banks, and also the SBA, are really struggling to get enough information and clarity out there about this program and to make sure the program works effectively."

The following is a transcript of their conversation.

David Brancaccio: So what are you hearing from members in terms of those who've tried to get into the system, tried to sign up for a loan?

Amanda Ballantyne: Well, it's confusing, and there's a lot of frustration and, I think, uncertainty. Many of our members have expressed concern before applying for the loans about whether the loans were the right product for them, but also really felt a sense of urgency to get in line to get the money because they were afraid it would run out. Those business owners who have successfully gotten applications in have had a lot of confusion. I would say business owners have heard very different things from different banks about who's eligible and what the requirements are.

Brancaccio: And some small businesses may not have the cash flow problem today and tomorrow, but still might want to get in the system, in case they need it in a few more days. You have to use the the Paycheck Protection Program money in a certain window. You can't wait forever to use it.

Ballantyne: That's right. And I think there's also some confusion among the banks about when those loans have to close and when they can be used by. I think the problem is that when the loan was designed, I think it was designed before people in Washington really understood how long this crisis might last. So it's also not clear, you know, whether business owners should just call their workers back from layoff right now, and then lay them off again in eight weeks if they continue to have to maintain business closure, or if they can wait a couple months and hire their workers back when the economy is ready to open again.

Brancaccio: In parts of Europe, it's a different structure altogether for the government helping to keep people on small business payrolls. They're giving money right to businesses so that the money can keep flowing.

Ballantyne: And that's a model that we've raised with many, many of our federal legislators around the country. We think it's the right way to approach the problem. What you need right now is to create security, both for small businesses and for workers, so that they can focus on their health. What the PPP does is create a lot of risk and uncertainty, which is unnecessary. It involves, you know, thousands of banks, which is another administrative layer.

Main Street Alliance has really advocated that we look at the type of program that Rep. [Pramila] Jayapal, [D-Wash.,] has created in a new bill, the Paycheck Guarantee Act, and also that [Republican Sen. Josh Hawley] has created. Both of those programs are looking at what Europe is doing, and money would go straight to businesses, and businesses would have to prove that they're using the money correctly to show that they used it on payrolls, to show that they used it on rent — other types of fixed costs that are covered by the program. That would, I think, alleviate a lot of the administrative burden that businesses are experiencing. Of course, you have many, many business owners who just don't have close relationships with 7(a) approved lenders. So this type of program that Rep. Jayapal is suggesting would also avoid some of the disparities that will result from using the banking institutions to provide this short-term relief.

Brancaccio: What you're referencing is businesses have to borrow from a subset of banks that are accredited to do this, and some may have ongoing deep relationships with those banks, but some businesses may not.

Ballantyne: That's right. Millions of businesses do not have relationships with those banks. And what we're seeing is a level of uncertainty from the banks themselves that the loan fund isn't adequately capitalized. There's nervousness among the banks about, you know, giving out too many applications. And, in fact, we've seen major banks, like Bank of America, actually refuse to provide those loans to anyone who wasn't already a customer. So we're already starting to have unevenness in access and eligibility, and there's just no question that there will be racial disparities in access to the Paycheck Protection loans.

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