Secure financing for your small business – consider your credit score, available collateral and repayment capacity when applying for loans. Learn strategies to improve your credit score and obtain help from experienced professionals to increase the odds of being approved. Alternative lenders such as local banks, credit unions and CDFIs provide access to more flexible options. Consider character along with financials when seeking loan approval.
Questions Answered in this Article
Can I secure financing if I have a bad credit score? Yes, though it’s important to be transparent about your payment history when engaging with lenders. This allows them to know that you understand what being a responsible borrower means and that you are dealing with your issues in an open and honest manner. It is also important to use strategies to build up your credit score and expect lenders to focus more on other factors such as cash flow or how much collateral you have.
What sources of financing can I access? Traditional banks may have stringent lending requirements which make it difficult for small businesses to gain access to financing. However, local banks, credit unions, and CDFIs (Community Development Financial Institutions) offer more flexible options and personalized services. When considering loan approval factors such as character take precedence over other factors such as credit scores or financials.
What should I keep in mind when applying for a loan? Carolyn Katz, a SCORE mentor who helps small-business owners apply for loans, warns prospective borrowers not to expect immediate changes in lending criteria due to ongoing news about potential student debt cancellation. Instead, factor your full balance into your budget when applying for loans until such time that policy changes actually come into effect. Furthermore, those with student debts should make sure they incorporate this into their budget plan and provide all necessary documents needed by the lender showing proof of financial stability in order to increase their odds of approval.
How do CDFIs support individuals looking for financing? CDFIs provide access to more flexible options and personalized services than traditional banks. Desha Elliott from Accion Opportunity Fund (AOF) explains that “We’re looking at credit, collateral, character, and cash flow — and more so specifically your character and cash flow” when assessing an individual’s eligibility for financing. Additionally, CDFIs place additional weight on how an individual entrepreneur deals with challenging situations when trying to gauge their personal experience and commitment in addition to their financials – which gives entrepreneurs with bad credit scores a better chance at being approved for loans compared with traditional banks.
How does my repayment capacity factor into loan approval? Repayment capacity is another key factor looked at by most lenders when assessing whether or not an applicant will be eligible for approval – thus it is important that potential borrowers show proof of financial stability in order to increase their odds of getting approved by providing all necessary documents needed by the lender regarding repayment capacity. Be prepared ahead of time so that during assessment periods you can present sufficient records demonstrating your capacity to repay any debts taken on – this will give lenders confidence that taking on debt won’t put too much strain on you financially going forward if approved!
Securing Small-Business Loan Approval Despite Existing Student Loan Debts
For entrepreneurs, managing student debt can be a difficult task when it comes to securing small business loans. A large number of Americans are burdened with student loan debt — 45 million in total — and this can limit the access to business capital. Because lenders use borrowers’ credit scores and debt-to-income ratios to judge the likelihood of them defaulting on their loans, financing options can be limited.
However, it is still possible to find a lender willing to finance your venture even if you have student loans. David Canet, managing director of the SBA Lending Group at ConnectOne Bank, reports that half or more of the bank’s loan applications involve individuals with student debt.
Factor Student Loan Debt Into Your Budget
In order for entrepreneurs burdened by student loan payments to get approved for a business loan, they must adhere to certain criteria set forth by lenders. As each lender has its own requirements for loan approval, borrowers should research what each one looks at closely when assessing an application. Credit score and available collateral as well as repayment capacity are commonly taken into account by lenders so having all documents ready that demonstrate your financial situation is important. Furthermore, prospective borrowers should also remember that most banks will require them to provide collateral when asking for a loan. Since businesses typically don’t have real estate assets right away, many times the borrower himself or herself will need to offer up personal collateral such as second mortgages or auto loans in order to secure financing from the banks.
If you’re applying for an SBA-backed loan, some extra preparation might be necessary during the application process due to additional qualifications required according to Canet: “We look very closely at cash flow and we have very stringent underwriting guidelines.” This means applicants may need more paperwork and proof of financial stability than usual in order to get approved. Seeking out pre-qualification from other lending institutions before applying can greatly improve your chances of success as well since many lenders will take this into consideration during assessment.
Ultimately, obtaining a business loan while managing student debt is still doable but it requires doing some legwork ahead of time and being prepared with all necessary documents beforehand so you make sure your application stands out favorably among other candidates competing for financing opportunities.
For entrepreneurs with student debt, getting approved for a business loan can feel like a daunting prospect. With 45 million Americans burdened by student loan payments, lenders often use borrowers’ credit scores and debt-to-income ratios to judge the likelihood of them defaulting on their loans. As a result, financing options may be limited for entrepreneurs who are also managing student loan payments.
However, it is still possible to find a lender willing to finance your venture even if you have student debt — but it requires you to factor your full balance into your budget. David Canet, managing director of the SBA Lending Group at ConnectOne Bank, says that half or more of the bank’s loan applications involve individuals with student debt — so there is hope.
In order for an entrepreneur burdened by student loans to get approved for a business loan, they must be able to show that they can manage their personal expenses as well as their business ones. When presenting financial information in an application, Canet suggests adding a personal budget that outlines all expenses and how much is able to be set aside towards repaying student loans each month in order to prove you’ve put thought into both aspects of paying back debt.
Be Transparent About your Payment History
Debt, especially student loan debt, could have a significant impact on your credit score. Many entrepreneurs have some negative marks on their credit reports due to missed payments in the past. Even though these issues exist, it’s important to be transparent about your payment history when engaging with lenders.
This allows them to know that you understand what being a responsible borrower means and that you are dealing with the issue in an open and honest manner. It is also important to use strategies to build up your credit score and expect lenders to focus more on other factors such as cash flow or how much collateral you have.
Desha Elliott, a local market manager at Accion Opportunity Fund, emphasizes this point by stating, “Most lenders take into consideration all of these things before making any decisions about financing”. Therefore, it is always wise to use strategies to improve your credit score so as to increase your chances of being approved for any financial assistance you may need.
Although there are ways of improving your credit score, it is important to remember that each individual’s situation is unique and requires different approaches in order to get back on track. In addition, obtaining help from experienced professionals can be invaluable in helping you reach your goal of becoming a financially responsible borrower.
Approach the Right Lenders
In many instances, large traditional banks have stringent lending requirements that make it difficult for small businesses to gain access to financing. Fortunately, there are alternatives such as local banks, credit unions, and CDFIs (Community Development Financial Institutions) which provide access to more flexible options and personalized services.
Desha Elliott from Accion Opportunity Fund (AOF) elaborates on this point by stating, “We’re looking at credit, collateral, character, and cash flow — and more so specifically your character and cash flow”. Therefore when considering loan approval factors such as character take precedence over other factors such as credit scores or financials.
Similarly, Canet notes the importance of placing additional weight on how an individual entrepreneur deals with challenging situations when trying to gauge their personal experience and commitment in addition to their financials. He notes that “small-business lending at this level is never just brass tacks” citing a real example of an individual who was approved for a loan despite significant medical school debt due to their proven ability to overcome difficult situations.
When seeking financing for small businesses it is always important to approach the right lenders in order to gain access to options that may be better suited for one’s unique situation. Taking into account the personal elements of the endeavor along with understanding what each type of lender specializes in can greatly improve one’s chances of being approved for any given loan and consequently access much-needed capital.
Review Loan Terms Carefully
For entrepreneurs who may struggle to meet typical business loan requirements, it is important to exercise caution when dealing with predatory lenders that don’t always provide a clear picture of the actual cost of borrowing. Certain areas must be given consideration before accepting any loan offer such as the annual percentage rate and all associated terms as well as any additional fees or prepayment penalties.
Carolina Martinez, CEO of Cameo and California’s statewide micro business network has some sound advice when dealing with any loan offer stating “If the loan deal sounds too good to be true, it probably is”. Therefore it is imperative that individuals take their time to carefully review each offer and assess if they will be able to afford the payments while also ensuring they are utilizing the funds for their intended purpose.
Desha Elliott from Accion Opportunity Fund adds that borrowers should always evaluate whether or not they can responsibly manage the payments associated with a particular loan and that “[i]f not, it isn’t the right financing”. Ultimately, taking extra precautions and doing all due diligence upfront will help prospective borrowers make sure they have access to the best options available for their out-of-the-box entrepreneurial venture.
Seek Expert Support
When it comes to applying for a loan, having the right product is one part of the puzzle. Equally as important is being prepared to apply for it in order to give yourself the best chance of success. Small business owners who are just starting out often need guidance, which can be sourced through free resources like mentoring and coaching services provided by CDFIs and SCORE.
In addition to having all your paperwork in order before making a loan application, entrepreneurs should also use it as an opportunity to make their case – remember that first impressions count, so take that extra time to ensure you’re giving yourself the best chance of success.
Lenders today understand that the majority of small business owners have debt and other liabilities such as student loans. Therefore, if you believe a loan is right for you and you think you’re ready for it, don’t let those debts put you off trying – if you’re unsuccessful in your attempt then look at what areas may have been weaker on your application so that you can improve it and try again in future.
What all small business owners should remember is that lending institutions are not beasts – they want the applicants to succeed and will go a long way to ensure those aspiring entrepreneurs are given everything they need in terms of support and advice in order for them to get their businesses off the ground.
Summary
It can be difficult for small business owners to secure financing in this uncertain economy, especially if they have student loans that must also be managed. In many cases, lenders take a close look at an individual’s credit score and collateral when determining loan eligibility, meaning student debts can become a stumbling block. However, entrepreneurs with some preparation and the right advice can successfully borrow money while handling student payments.
Here are our top tips to help you manage your debt and build a successful loan application:
- Obtain a clear picture of all your debts from creditors, including student loan information. Understand where you stand financially before you start applying for any type of loan so you can present accurate budget plans to banks or lenders.
- Be transparent about your payment history; let lenders know that you are taking responsible steps to pay back any debts on time. This will go a long way in demonstrating that you understand how being a responsible borrower works and it may give them greater confidence in lending to you.
- Utilize strategies to improve your credit score; this could make the difference between acceptance and rejection when it comes to loan applications.
- Approach the right lender – large traditional banks may have stringent lending requirements which prove too hard for small businesses. Alternatives such as local banks, credit unions, and CDFIs (Community Development Financial Institutions) provide access to more flexible options as well as personalized services; they may also place additional weight on character rather than only focusing on financials or credit scores when deciding whether or not an applicant is eligible.
- Consider current news stories about potential student debt cancellation carefully before making assumptions about any changes in terms – Carolyn Katz from SCORE cautions prospective borrowers against expecting immediate changes since this would require too much legwork from banks and lenders during assessment periods. Instead, factor your full balance into your budget plan when submitting applications until policy changes come into effect.
For entrepreneurs with mounting debt obligations, obtaining financing doesn’t need to be an insurmountable obstacle; careful preparation and knowledge of what different lenders expect help increase the chances of having an application accepted despite existing debts such as student loans!
