Lending Library

Funding is a key part of starting a small business. After securing a loan, you can find an office space, open a storefront, order inventory, launch an e-commerce website, and pay for the services needed to get your small business off the ground. 

Starting and growing your new business doesn’t necessarily mean draining your personal bank account. Instead, look for funding opportunities to supplement your financial needs.

The cost to start and run a successful company varies greatly depending on the business model, industry, location, and the owner’s goals. According to the Small Business Administration (SBA), most microbusinesses with 1–2 employees only need $3,000 to start. Most home-based businesses are launched with just $2,000. 

Obviously, the funding needed to launch a franchise or an innovative tech startup could stretch into the hundreds of thousands, but a lot of small businesses only need a little extra capital to get their business running.

Small business owners looking for funding solutions to cover startup expenses should consider microloans. While smaller in nature, microloans can provide entrepreneurs—especially minority entrepreneurs or those in low-income communities—access to the capital needed to launch their business.

This guide takes a deep dive into microloans and answers frequently asked questions while assessing the value of this financing option. Keep reading to determine if microloans are the right funding solution for your business.

What is a microloan?

A microloan is a smaller loan with fewer stipulations issued to business owners, typically disadvantaged entrepreneurs. A business can use a microloan for a variety of purposes but will have to pay it back faster than traditional loans. 

Microloans typically cover smaller loan amounts with flexible requirements and terms. There’s no set amount for what constitutes a microloan, but according to the SBA, a microloan is any loan amount falling below $50,000. The average microloan amount is around $13,000. However, some organizations issue microloans for a little as $500—especially if they want to support community businesses or help entrepreneurs struggling to secure other funding. 

While microloans are usually available to anyone, some financial institutions will limit applicants to certain demographics. More organizations are specifically developing microloan programs to help disadvantaged business owners access the funds they need but have been unable to receive through traditional financing.

Microloans were built to help disadvantaged business owners.

The modern microloan has its roots in 1970s Bangladesh, where economics professor Mohammed Yunus loaned $27 to local women who wove bamboo stools. Yunus saw how these women were exploited by money lenders and decided to offer a better alternative. 

With his loan, these women were able to buy their own materials and begin selling their stools in their own shops. This small loan helped them launch their businesses, and they were able to quickly turn a profit even as they paid back their loans—helping to break the cycle of poverty and debt.

Yunus went on to start the Grameen Bank Project, which strived to provide funding to poor and disadvantaged business owners. Yunus and his bank were awarded the Nobel Peace Prize in 2006. 

In the modern era, several organizations provide similar services through microloans. In the United States, the SBA offers microloans to qualifying businesses to help them establish themselves and grow. 

Local governments offer small business microloans to foster job growth. Even private organizations have microloan arms that are meant to support lower-income and disadvantaged people. By giving these entrepreneurs the support they need, these microlenders can have a significant impact on communities with minimal capital risks.  

Of course, there are plenty of microloan funding options for business owners who don’t come from disadvantaged communities. However, microloans are rooted in creating opportunities for people with poor credit and limited resources. As many minority small business owners experienced during COVID-relief funding, financing isn’t always equal. Programs like microloans can balance the scales and give disadvantaged business owners access to additional funding.

What's a microloan used for?

Most microloans aren’t limited to a certain type of purchase and can be a flexible way to access the funds you need to open and run your new business. Along with providing a boost to startups, more established businesses apply for microloans when they need to rebuild after a natural disaster or when they want to expand their current operations. Companies of all sizes, shapes, and industries can use the capital from microloans to cover short-term business expenses.

A few examples of common ways small business owners might use microloans include:

• Working capital: this refers to the liquid cash you have on hand to coer daily costs. Working capital can pay for miscellaneous expenses and protect your business if you go over budget for any reason.
• Inventory: a crucial part of many small businesses, from e-commerce stores to local product-based companies. You can purchase items for sale or invest in materials that can be used to manufacture your products.
• Supplies: your supplies can cover everything from safety equipment to office items for your staff. You’re likely going to need to invest more in supplies at the front end of your business but will always need to consider these expenses as you grow.

• Furniture and fixtures: if you have an office or storefront, you’ll need desks, couches, lighting, and other furniture or fixtures to help improve comfort and productivity. You can use a microloan to cover these costs.
• Equipment and machinery: this includes everything from your POS systems to large-scale manufacturing equipment. Like supplies, you will invest more at the start of your business on these expenses, so securing a microloan can give you the capital needed to make these purchases before launching.
• Employee wages: microloan borrowers can use the funds to cover employee wages and salaries. This financial relief can keep your staff covered during a struggling period or while you wait for outstanding client payments.

Some organizations might set restrictions on how you can and can’t utilize microloans, so always review and discuss the requirements with your lender. For example, the SBA states that microloans can’t be used to pay existing debts or to purchase real estate. 

Other microlenders create loans to cover equipment costs or to promote hiring growth, which means you’ll need to use those funds for specific purposes. However, for the most part, you’ll have complete flexibility to use your microloan however you’d like.

What are the pros and cons of microloans?

Like any funding decision, a microloan has pros and cons that could determine whether this financing option is best for you. Just because microlending worked for another organization doesn’t mean it’s right for your needs. Consider a few of the pros and cons of microloans as you weigh this funding option. 

Some common advantages to microloans include:

• Microloans tend to have fewer requirements than traditional loans.
• They usually have lower credit score requirements, which means you’ll still qualify if you don’t have the best credit.  
• They are often approved faster than larger loans, giving you access to necessary funds quickly. 
• They are easier to pay off, which means your business can become debt-free faster. 
• They are less expensive. Smaller loans typically mean lower interest rates, so you owe less on the money you borrow. 
• You may not need collateral. Some microloans won’t require any collateral to prove that you’ll repay the money. 

These benefits have a significant impact on small businesses that need startup funding to open their doors or need a short-term loan to cover emergency costs. However, there are some drawbacks to opting for a microloan. 

Some common disadvantages to microloans include:

• The amount is limited. Microloans are inherently small, which means you may not have access to the full amount needed to make a significant difference in your business.
• The term might be shorter, which means you will need to pay back your loan faster and could have a higher monthly payment than a traditional loan. 
• Some microloans have restrictions on what you can spend the money on—like equipment financing or building remodeling. 
• You may not qualify if you don’t meet certain demographic requirements. Some microlenders support specific demographics (like women-owned businesses), disqualifying entrepreneurs who do not meet those requirements.

As you start to research microlending, consider what amount you’d need to borrow, how you plan to pay it off, and the timeline needed to return the amount borrowed. Answering these questions will help you to determine whether the terms of the loans you find are reasonable and to decide if a microloan is the right option. 

Who issues microloans?

There are several organizations that specialize in providing microloans to small businesses. The SBA is one of the most common sources of microloans, so we’ll start there.

SBA microloan program

The SBA is a popular funding resource for small businesses, and they also facilitate microloans throughout the country. You won’t deal directly with the SBA to apply for and receive these microloans.

Instead, the SBA partners with intermediary lenders—nonprofit community-based organizations with lending and management experience—to review, approve, and distribute microloans to borrowers.

Small businesses looking to secure a microloan from the SBA’s microloan program should know the following details:

• Borrowers will need to contact their local SBA district office to begin the application process.
• Each intermediary lender has its own lending and credit requirements, which can vary.
• The maximum repayment term on an SBA microloan is 6 years.
• The maximum amount a borrower can receive is $50,000.
• Interest rates on the microloan are determined by the intermediary lender but typically fall between 8 and 13%.
• SBA microloans cannot be used to purchase real estate or pay off current debts.

Other microloan lenders

Beyond the SBA’s microloan program, you can also find microloan opportunities from private lenders or nonprofit organizations like Accion USA or Kiva.

To find a lender who can help you secure a microloan, check out the curation lender services from Lendio. You can fill out a few basic forms and compare lenders to see which ones offer the most favorable terms. To start, answer a simple question: how much money do you need? 

If you don’t want to work with a new lender, consult your bank or credit union about their small business funding options. Some banks offer discounts to existing customers, which means you could save by taking out a loan where you already have an account. However, it pays to compare rates, and you could save a significant amount of money by shopping around for loan providers.

What do you need to apply for a microloan?

Preparation is the best way to increase your odds of getting approved for a microloan and receiving your funds faster. Gathering the right information before you start the application process will streamline your approval. 

A few basic items you will likely need for the microloan application include:

• The loan amount you need and what you plan to use it for;
• Your business bank account routing information;
• Your LLC documents and IRS Employer Identification Number (EIN);
• Applicable business licenses; and
• Relevant information about your business (size, employees, annual sales, etc.).

Additionally, you’ll need to be ready for the lender to pull a business credit report and potentially a personal credit report. While you’ll be able to self-report on the application, most lenders will confirm your credit scores on their own. Microloans tend to have lower credit score requirements, but most lenders will still use your credit history to determine your eligibility and interest rates.

Keep in mind that different lenders will set different requirements for loan approval. While this list provides a basic guide for what you should gather, you may need certain documents or statements to confirm your eligibility.

If possible, review the requirements for your microloan before beginning the application process and talk to a lending specialist. They can help you to create a checklist of items to gather before you apply.

The impact of microloans on women and minorities.

Women start firms with about half the capital men do, according to a 2014 study by the National Women’s Business Council, and women-owned firms average about 6% of the outside equity that male-owned firms receive. On top of that, women receive less than 5% of conventional small business loans, even though they make up nearly 40% of all small businesses in the country.

So women are basically killing it in the economy, but they’re not alone. Minority-owned American businesses are growing at a staggering rate. In 2012, minority entrepreneurs owned over 8 million—about 29%—of businesses nationwide. This number was a huge increase over the 5.8 million owned in 2007. Yet many minorities struggle to secure funding due to lower credit scores and fewer collateral assets. The US Department of Commerce found that minority-owned businesses see loan denial rates that are 3 times the national average.

Here we have 2 amazing groups of people who are struggling to find funding for their businesses. Enter microloans. Because microlenders are more interested in fostering growth than they are in making a profit, many choose to focus on bringing their resources to the groups who need them most.

According to a report released by the city of Los Angeles after they approved a new microloan bill, “It is estimated that every dollar loaned to a small business or microenterprise generates approximately $2 of economic activity. As such, the Microloan Program could generate $2,500,000 in stimulus to the Los Angeles economy over the next 5 years.”

Simply put, microloans make the small business world go ‘round.

How you can access microloans.

Because most microloans are designed to help new and struggling businesses, their requirements are much more forgiving. You don’t have to worry if your credit isn’t perfect or if your business isn’t making a million bucks a year. You don’t even have to worry if your business hasn’t been around for a year. Applying for a microloan is easy and stress-free.

SBA microloans

As mentioned earlier, the SBA is all about those microloans, with an average microloan of about $13,000. You can’t go to them directly for the loan, however—you have to go to one of their intermediary lenders. The SBA website has a list of authorized intermediary lenders participating in the SBA’s microloan program. Your results will depend on the state where you live. SBA microloans can be used for:

• Working capital
• Inventory or supplies
• Furniture or fixtures
• Machinery or equipment

Proceeds from an SBA microloan can’t be used to pay off old debts or purchase new real estate.

Repayment terms vary according to the loan amount, planned use of funds, requirements determined by the intermediary lender, and needs of the small business borrower. The max repayment term allowed by the SBA for one of their microloans is 6 years with interest rates varying depending on the intermediary lender.

SBA loans can be a great way to get a good rate on a small loan, but they aren’t the only option for your small business.

Marketplace lenders offer competitive small business loans.

That’s right, marketplace lenders like Lendio offer loans similar to microloans. Though our lenders wouldn’t technically call any of our financial products microloans, we offer loans as low as $500.

Best of all, you just have to fill out our short 15-minute application to get the process started. You’ll start by telling us the amount of money you want—anywhere from $500 to $5 million. You’re probably not looking for millions just yet, but a microloan can help you get there.

Microloans lay a foundation for your growth.

Whether you’re a startup, in a rough financial spot, or just need extra cash, any amount of money can help. $500 can purchase a new piece of software that will streamline your workflow. A couple of grand can get you a shiny new laptop to draft your new book or edit your first YouTube video.

There are certain things microloans probably can’t help you with—like covering your entire payroll, buying a new property, or hiring additional staffers.

However, microloans can become a critical financial tool for your small business.

To give you a better idea about how these funds can help you grow your business, here are 5 common ways small business owners like you use microloans.

1. Working capital

Working capital is the money a business needs to finance its day-to-day operations—like covering utility bills, getting supplies, buying inventory, and paying for an employee appreciation party.

Cash is the lifeblood of every business. Yet many businesses struggle with cash flow, which makes it hard for them to cover run-of-the-mill expenses with any sense of urgency. For example, a recent study by PricewaterhouseCoopers found that the average company takes 68 days to pay its creditors.

With a microloan on hand, you have a reserve fund to dip into to cover working capital expenses. Not only can this help you reduce debt, it can also help you avoid late fees.

2. New equipment or tools.

Often, a simple investment in new equipment can go a long way toward increasing productivity. For example, if a company is still using an old-school cash register and managing accounting by hand, it stands to benefit tremendously from moving to a more modern solution.

You can use a microloan to invest in new equipment or tools that deliver rapid ROI. For example, if you run a company where employees are spread out and working in the field, investing in a collaboration platform like Slack to streamline communication can help your entire team work more efficiently, increasing profitability.

3. Launching a new service.

Let’s say you run a local restaurant that’s been a staple of the neighborhood for some time. For years, loyal customers have been begging you to launch a food truck business so they can grab tasty treats elsewhere across town. You always liked the idea, but you just didn’t have the capital to make it all happen.

All of a sudden, a used food truck practically falls into your lap for a price that’s too good to refuse, and you’re finally ready. You just need a little bit of extra funds to finance some other food truck startup costs.

A microloan can help you here, too. With access to these funds, you can give your truck a tune-up and paint job, buy cooking items, and start your new culinary adventure.

4. Attending a conference.

One of the best ways to grow your business is by attending a relevant conference or trade show that’s specific to your industry. Not only can this help you learn new things and stay on top of the latest developments in your field, but it can also help you land new clients.

Paying for a conference, however, can be tricky. Conference tickets can be expensive, and you may also have to pay for lodging, travel, and food costs, among other incidentals.

A microloan could help here, too. Use the funds to cover your conference-related expenses. If all goes according to plan, the skills you learn and the contacts you make will more than offset this spend.

5. Marketing your business online.

In the age of mobile devices and ubiquitous connectivity, how can you expect people to find your business if you don’t have a robust web presence?

Microloans can help you pay for online marketing initiatives. For example, you might decide to invest in content marketing, pay for sponsored posts, or advertise your business on Google and social media. Microloan amounts should be enough to launch test campaigns or boost important company news.

What are some alternatives to microloans?

If you decide that microloans aren’t the best option for you, there are other funding alternatives to consider. These options can provide the same flexibility and similar funding amounts to microloans. Consider what’s available to you and whether these choices are better for your business. 

• Business credit cards. Like a personal credit card, a business credit card lets you spend money on anything you want. Your credit provider will set a limit for how much you can spend, but you can keep charging the card as long as you stay below that limit and pay it off. Credit cards have several benefits—namely their cashback rewards—but they might not be available if you have poor credit. They also might have annual fees and high interest rates that drive up their costs. 
• Crowdsourcing. Crowdsourcing is the ultimate microloan. Instead of seeking a lump sum of money from 1 person, you ask many to give you a few dollars each—like asking 200 people for $10 to raise $2,000. Websites like Kickstarter are popular for small businesses to raise funds, and you might not even have to pay the loan back. However, crowdsourcing is unpredictable, and you may not get all the funds you need if your goals aren’t met. 
• Peer-to-peer lending. P2P lending is like crowdsourcing, but it tends to occur on a larger scale. Through P2P sites, investors and entrepreneurs can donate a few thousand dollars as a loan that you’ll pay back once your business starts to grow. Like crowdsourcing, the main drawback is that you don’t know if people will want to loan money to you. You might also have to follow strict repayment terms.   
• Small business grants. Grants are like loans, except you don’t have to pay them back. Some local governments and nonprofit foundations offer microgrants to small businesses to help build up their communities. While these grants are free, they often require a complex application process because so many companies apply for them. Plus, you may need to use the grant for specific projects—like investing in clean energy or job creation.

At Lendio, we have several business funding choices for your needs. Learn more about equipment financing, merchant cash advances, and other ways to secure small and large amounts of money to start your business.

Let us help you secure a microloan.

If you only need a few thousand dollars to launch your new business venture or help cover inventory costs, then a microloan might be right for you—especially if you’re a marginalized business owner. These smaller loans are a great way to get the working capital you need without taking on a lot of the risk or financial burden that comes with larger funding options.Whether you hope to secure $500 for a short-term upgrade or need a $50,000 investment, our team at Lendio is here to help you. Use our guides to research different funding types and opportunities for small businesses. You can find a potential microlender or an alternative option to increase the cash flow of your business.

A business line of credit is a pre-agreed amount of money that you can borrow when you need it and pay back when you don’t. As such, it’s a useful and popular tool that businesses of all sizes use to overcome cash flow gaps. But funds from a line of credit can also be used to grow the business in many ways, helping business owners accomplish more, faster.

That’s because you can use the money from a line of credit any way you wish. Unlike a traditional bank loan that must be used for the specific purpose, with a line of credit you can draw funds whenever you want, use them however you want, and draw the exact amount you want. If you don’t need the money right away, don’t use it. You can repay the credit line at any point (as allowed by your credit agreement), unlike a term loan from a bank, which has a fixed monthly repayment schedule.

Benefits of a Business Line of Credit for Small Business Owners

Finding the right funding for your small business needs can be tough. There are so many options to choose from. Lines of credit (LOCs) are perhaps the best option for small business owners. Here are 10 reasons why small businesses can benefit from a line of credit over a loan.

1. You have quick access to your cash. 

Unlike a loan, a line of credit allows you to draw funds when you need it, rather than taking out one lump sum from the start. This is especially true with lines of credit that are powered online. When you’re in a pinch and you realize you need working capital, the ability to hop on a computer and initiate a loan from your available funds is priceless.

2. You pay back only what you’ve used, not the total amount approved.

Think of a line of credit similarly to a credit card: a lender gives you a line of credit, which you have access to whenever you need it. Let’s say you want to renovate your store. You estimate the total costs of being $35,000, and you’re approved for a line of credit for $40,000. However, once you begin the renovating process, you find that the costs are much lower than expected (let’s say, only $20,000). You can take out just that $20,000, and pay back the interest on that amount, not the $40,000.

3. Cover your expenses anywhere, anytime.

With a line of credit, you can cover any unexpected expenses or any upcoming expenses you know you’ll need help with. Since you are not required to initiate a loan for the entire amount you are approved for, the rest of those funds are sitting there ready for you when you need them. This benefit allows you have the comfort and flexibility that traditional bank loans don’t offer.

4. Your line of credit can be unsecured.

Unsecured loans are a lot less risky for you and your business, and your credit score really comes into play on getting an unsecured loan. With an unsecured loan, you’re at less risk should you default on your payments. Defaulting only increases your rate in an unsecured loan whereas, in a secured loan, the lender is able to seize your assets (personal, business or both) in order to receive what they’re owed.

5. Cover those in-between costs.

When is the cost is too much to throw on a credit card but not large enough to justify taking a loan out, LOCs are great for covering those in-between amounts. For example, if you need to do maintenance on your truck for your company, it can sometimes be pricey. In some instances, your credit card wouldn’t provide enough, but the cost doesn’t warrant taking out a loan. That’s where LOCs come into play. See how much the bill is and take exactly what you need.

6. Build your business’s credit.

If you’re looking to improve your business’s credit score, a line of credit can help you do so. Making your payments on-time reflects positively on your score and can help you receive a larger line of credit in the future.

7. Separate personal and business expenses.

One issue many small business owners face is keeping that divide between their personal expenses and their business expenses. With a line of credit dedicated to your business, you can smoothly create and track business expenses.

8. Help your short-term goals.

A line of credit can be used multiple times and is something you can get approved for before you need it. It doesn’t serve one specific purpose. A line of credit is great used as a short-term solution for different things such as marketing, renovations, buying inventory or even covering payroll.

9. Find lower interest rates.

Especially when you’re starting a new business, finding an affordable interest rate is crucial to all business owners. Lines of credit tend to carry lower interest rates as they aren’t interest-rate driven (unlike loans). However, these rates tend to be variable.

Ways You Can Grow Your Business With a Line of Credit

When opportunity knocks, here are just six ways you can put that money to work to take your business to new heights.

Form an Alliance with Another Business

Many freelancers or small businesses come together to work towards a common goal, without losing their individual brand identity.

Alliances are a great way to combine complementary skills and break into new markets, without the risk of doing it totally alone. Companies participating in alliances report that as much as 18% of their revenue comes from their alliances.

Start with something as simple as co-sponsoring an event or workshop together, running a marketing campaign leveraging the power of both brands and your combined skills, or working on a small sales opportunity to get a feel for how well you work together. And, remember, they don’t have to be permanent; unlike with a formal partnership, if it isn’t working, you have the option of walking away.

Having a business line of credit on hand gives you the flexibility to take these baby steps and cover costs such as legal fees (NDAs, contracts, liability protection, etc.) and co-marketing when the need arises.

Bring Fresh Thinking to Your Business

Looking to streamline your operations or breathe new life into your sales strategy? If the old way of using invoice factoring companies are not working out, you may want to consider new options. A line of credit is a great way to help you realize new opportunities with the help of a consultant.  

For example, if you have a critical selling season coming up but the same old approach is getting tired, hire a sales consultant to advise on new strategies and tactics. Or, if you’re a solopreneur looking for guidance in how to take your business to the next level, working with a career development coach can bring you fresh insights and helpful training.

Win a Government Contract

The U.S. federal government is the world’s biggest buyer of goods and services and sets aside contracts specifically for small businesses. Lucrative as it is, it takes money to win your first government contract. According to the SBA, some businesses spend between $80,000 and $130,000 to earn their first contract and two years to see any return on investment. For example, if you want to work with the Department of Defense, you must be able to invoice and receive payments electronically, which may require you to invest in new electronic systems. You’ll also need a skilled team of experts who knows how the process works. In an ideal situation, this team would include a proposals manager, contracts manager, experienced sales team and marketing support. While you’re at it, you may want to consider SBA loans to help accelerate your business.   

These investments aside, you’ll also benefit from healthy cash flow. The government doesn’t always pay on net-30 terms, so a line of credit can be a good choice to help you make the necessary investments and be able to draw on those funds quickly, even as soon as the next business day.

Get a Marketing Edge

Small business marketing spend has remained consistent over the years, hovering at around 10% of overall budget. But one trend is emerging – a strong increase in digital channel investment. At least half of small businesses plan to increase spending on social media marketing, content marketing, and online lead generation, whereas print, radio, and other traditional channels are set to see a net decrease in total marketing investment.

Getting into specifics, 75% expect to increase their Google Adwords spend and 71% will bolster their Facebook investment. With more potential clients researching everything online before making a decision about who to work with, can you afford not to make an investment in your online marketing?

But where do you start? What’s the best approach? A marketing consultant can help you pull together a strategy that works for your budget, goals, and expected revenue returns, and a business line of credit is a great way to finance your campaign because you can draw on it at each stage of your campaign, as and when the costs come in, repay it at your convenience, and replenish the credit until you need it again.

Franchise your Business

Franchising is a great vehicle for expansion because the onus is on the franchisee to invest in opening locations and perform well, while you reap a share of the profits. Once you’ve made the initial outlay it’s down to your franchisees to bear the costs of establishing new outlets.

Franchising may be a low-cost way to expand, but it’s not “no-cost”. You’ll need the help of a franchise attorney to draw up a franchise agreement, work with a franchise consultant to develop training programs and marketing materials, and protect your intellectual property, among other steps. It may also take some time to see a return in that initial investment which raises the question of financial exposure.

While there is no set cost for franchising a business, each business is different, many of the costs can be borne with a business line of credit. Since the process of setting up a franchise network takes time, you can dip into a line of credit of say $100,000 and pay it off at your convenience. A business line of credit operates similarly to a credit card, with a revolving balance, but they tend to offer lower interest rates, and there are no fixed payments.

Win a Big Contract, Without Cash Flow Woes

Opportunities like large contracts don’t come along often, but they frequently require upfront investment in equipment, supplies, and employees, which can quickly erode cash flow. A line of credit is perfect for this kind of opportunity because it gives you the flexibility to spend only what you need and have access to those funds quickly.

You always have other options for small business funding, however, if you apply for a loan, you must specify how you’ll use those funds, and it can take some time for the funds to be approved. A line of credit is more flexible. Once you start working the contract, you can pay off the line of credit to replenish it and use it again when the next need arises.

Not All Lines of Credit are Created Equal

There are literally hundreds of ways to use your business line of credit. From buying new software so you can scale your customer relationship management capabilities, to launching marketing campaigns that will take you into new markets. But not all lines of credit are created equal. Many banks and fintech companies in the U.S. rely solely on a small business owner’s personal credit score for underwriting. You may find this problematic if you’ve leveraged your credit to build a successful businesses, bruising it in the process.Instead, look for a lender that considers more factors like your total business performance, alongside your credit. Other things to look out for include the ease of the application process and approval timeline. Today, neither of these steps should take more than a few hours. If they do, don’t be shy about looking for quicker, better options.

When you review financing options for your business, you’ll likely discover that some lenders want you to sign a personal guarantee. A personal guarantee can help reduce a lender’s risk when it loans money to a business. Yet as a borrower, that same arrangement can put your personal finances in a vulnerable position. 

It’s important to understand how personal guarantees work and the risks you’re agreeing to accept before you sign on the dotted line. This small business owner’s guide to personal guarantees will show you the basic details you need to know on the topic. Once you have more information, you’ll be better equipped to make an informed decision about your business financing options.

What is a personal guarantee?

A personal guarantee is a special provision you might find in a business financing agreement like a small business loan, a business line of credit, etc. The provision states that the business owner (or owners) agree to accept personal liability for their company’s debt. 

If your business borrows money and fails to repay those funds (plus interest and fees), a personal guarantee allows the lender to go after your personal assets to recuperate its investment. So, at least in some ways, providing a personal guarantee is like agreeing to be a co-signer for your business.

Why do lenders require personal guarantees?

You won’t face personal guarantee requirements with every type of business financing. But many business lenders do ask small business owners for personal guarantees when their companies apply to borrow money. The reason lenders make such requests has to do with risk. 

Thanks to how business loans work, there’s a level of risk involved anytime a lender loans money to a borrower. There’s a chance the borrower will fail to repay the debt as promised and that the lender could lose money in the process. 

A lender can try to offset this risk and remain as profitable as possible in a few different ways. For example, lenders will review your creditworthiness when you apply for financing. If you or your business have good credit, you might find it easier to qualify for a loan. 

Another way lenders can manage risk is by asking business borrowers to provide collateral to “secure” the loan, line of credit, or business credit card they are seeking. And, of course, some lenders ask for personal guarantees to encourage business borrowers to repay their debts (and to provide additional resources for collections if they don’t).

Pros and cons of signing a personal guarantee.

There are benefits and drawbacks to signing a personal guarantee. Here are some of the pros and cons you should consider before you agree to put your name (and personal assets) on the line for your business. 

Pros

• There may be more financing options available to your business if you sign a personal guarantee—especially if you have good personal credit. 
• You might have better approval odds if you’re willing to sign a personal guarantee. 
• Signing a personal guarantee might help you lock in a better interest rate for small business financing. 
• Your business might be able to get a loan without collateral if you provide a personal guarantee. 

Cons

• You risk losing your personal savings, home, vehicles, and more if your business defaults on its debt. 
• Your personal credit score and credit history could be damaged if the business falls behind on its credit obligation—and your business credit might suffer, too.
• Even if you sell the business (or sell your interest in the business), your personal guarantee on a debt will likely carry on until the account is closed and satisfied in full. 

No one can predict the future. Should your business be unable to repay its credit obligations for any reason, you could pay the price with your personal wealth, if you agreed to sign a personal guarantee. If that risk makes you uncomfortable, you should probably search for other ways to finance your business.

Ways to avoid personal guarantees.

Many lenders ask for personal guarantees when you apply for business loans—especially if your business is still in the startup phase. But if you’re wondering how to get a business loan without signing a personal guarantee, there may be other options available to you. 

• Work on establishing good business credit. Building business credit is a process. So, the sooner you can start, the better. 
• Search for loans without personal guarantee requirements. With certain types of business loans, like SBA loans, personal guarantees are not negotiable. Yet a few lenders may be willing to loan your business money without requiring a personal guarantee in return. However, every lender is different. So, if you prefer a business financing option that you can obtain in your company’s name—instead of your own name—be sure to do your homework. 
• Supply collateral. If your business has collateral that it can pledge to secure a loan, those assets could reduce the risk involved for the lender. As a result, your company might find it easier to find secured financing options without a personal guarantee than unsecured financing. 
• Consider a blanket business lien. Another way to reduce a lender’s risk when you borrow money is to sign a blanket business lien. A blanket lien gives the lender permission to take possession of all of your company’s assets and resell them in the event of a default. Agreeing to a loan offer that includes a blanket lien is also a high-risk way to secure financing, but it’s the business—rather than the business owner—that’s absorbing most of the risk in this scenario.
• Be aware of a confession of judgment. A confession of judgment is an additional document provided as part of your loan contract package that waives the business owner’s right to a legal defense before a court and allows a lender to go after a business’s assets if the business defaults on the loan. Including this clause is illegal in some states and Lendio does not work with lenders that include one. 

It can be difficult to borrow money for your business or even establish business credit without accepting some personal liability in the process. Lenders tend to be more comfortable working with companies when business owners are willing to put some “skin in the game.” 

However, it’s not impossible to find alternative financing solutions that do not require personal guarantees, if this is the borrowing approach you prefer. 

Consider the benefits and drawbacks of accepting personal liability for business debts up front. Some business owners are comfortable with taking on personal risk in exchange for more attractive financing options. Others are not. Only you can decide whether a personal guarantee is something that you’re willing to chance for the sake of your company.

There are numerous ways to secure business capital, and debt financing is at the top of that list. With debt financing, your business borrows money from a lender—often in the form of a short term loan or business line of credit—and agrees to repay those funds plus interest in the future.  

The right business loan or line of credit can come with many benefits. Business financing might enhance your cash flow, provide you with working capital, or give your company the financial flexibility it needs to expand. 

Yet it’s also important to understand what your business will be agreeing to repay when it borrows money, and how that new debt relates to what your business already owes. Therefore, it’s wise to calculate the cost of debt before you seek new business financing.

What Is Cost of Debt?

When a lender or debt holder extends credit to a business, it’s making an investment on a future return. In other words, the lender expects to receive compensation for the risk it’s taking at some point in the future. 

Cost of debt is the term that describes how companies repay the lenders and creditors from which they borrow money. Cost of debt is the effective interest rate a company pays to creditors—also known as debt holders or lenders. 

Others may want to know your company’s cost of debt figures, because it can help them assess the risk of doing business with your company. For example, if your business is trying to attract new investments or apply for certain types of financing, investors or lenders may want to know your company’s cost of debt to assess the financial stability of your business. 

As a business owner, you may want to calculate cost of debt as well. Knowing your cost of debt can help you make sure your current business debts aren’t putting your company under too much pressure and can help you to determine whether or not it’s wise to borrow additional money for your business.

How to Calculate Cost of Debt

Before you calculate the cost of debt for your company, you will need to gather some information. Here’s what you need to get started:

• A list of the outstanding debts your business owes. 
• The APRs your business owes on each of its debts. 

You may have to estimate some of the figures above, since the debt your business carries throughout the year may fluctuate. This may be especially true if you have business lines of credit or business credit cards with revolving balances. Your overall debt figures may also experience some variations depending on whether you have fixed or variable interest rates.  

Next, it’s important to understand that there are multiple ways to calculate cost of debt. Two of the most common approaches to the cost of debt formula are to calculate the after-tax cost of debt and the pre-tax cost of debt. Below is a closer look at the cost of debt formula for each option. 

Pre-Tax Cost of Debt

To figure the pre-tax cost of debt for your business, start by adding your total interest expenses for the year. Then, divide that figure by your total number of business debts. 

Here is an example. 

Imagine your business has three debts:

• Business Loan A: $50,000 at 4% APR
• Business Loan B: $50,000 at 7% APR
• Business Loan C: $100,000 at 5% APR

In this scenario, then, your total debts would equal $200,000.

Next, assuming the loans above all have fixed interest rates, you would calculate the total annual interest expense as follows. 

• $50,000 X 4% = $2,000
• $50,000 X 7% = $3,500
• $100,000 X 5% = $5,000

Add up the three interest amounts for the debts and your total annual interest expense would equal $10,500.

Finally, you input all of the figures above into the cost of debt formula. 

In the example above, the pre-tax cost of debt—also known as the effective interest rate—that your business is paying to service all of its debts throughout the year would equal 5.25%. 

After-Tax Cost of Debt

Now let’s consider the after-tax cost of debt. The after-tax cost of debt is how much your business pays for its debts after you factor in the cost of taxes. 

Many interest charges are tax deductible for businesses. (Note: You should talk to a reputable tax advisor for advice on any specific tax-related matters.) So the after-tax cost of debt calculation is the more common figure that business owners, lenders, and would-be investors will likely want to review. 

To calculate the after-tax cost of debt, you will need to use the following formula. 

As you can see, this formula picks up where the pre-tax cost of debt formula left off. In other words, you must use the first formula to calculate the effective interest rate before determining the after-tax cost of debt. 

Below is an example of an after-tax cost of debt calculation to help you visualize how the process works. 

Building on the example above, let’s still assume that your business has an effective interest rate of 5.25%. Since tax rates vary for different businesses, for the sake of this exercise, let’s also just assume that your business is paying a 9% corporate tax rate. 

Now, let’s take a look at how the numbers align in this hypothetical after-tax cost of debt calculation. 

So, in the example above the after-tax cost of debt is 4.77%.

Why Does Cost of Debt Matter?

Choosing the right financing solutions for your company can have a meaningful impact on its bottom line. Avoiding financing can stall business growth and cause you to miss out on valuable opportunities for growth and expansion. Yet, if you overextend your business financially and its cost of debt grows too high, that can create problems of its own. Therefore, it is important to take the time to do some careful research before you seek financing and find the right balance that works for you. 

A commercial loan is a type of financing available to businesses. General commercial loans can be used for any business-related expense, from payroll costs to expanding to a new location. There are also specialized loans used for specific purposes, like buying equipment or acquiring another business.  

Read on to learn more about how commercial loans work and how to choose a financing structure that best meets your business needs.

Commercial Loan Definition

So what is commercial financing? It's when a business borrows money from a financial institution. Here's how commercial loans work. The business receives a lump sum to be used at the owner's discretion. The funds are then repaid over time according to the conditions of the loan agreement. The lender charges interest that is added to the loan balance and included in the payments. Depending on the type of commercial loan, payments could be made daily, weekly, or monthly. 

In order to qualify for a commercial loan, businesses apply using their credit scores (often including the owner's personal credit score), revenue, and time in business. Different lenders may have different requirements and request additional types of documentation. They may also request that you offer some type of asset as collateral for the loan. 

4 Types of Commercial Loans

These are four of the most common types of commercial loans to consider as a starting point for your business financing needs.

SBA Loans

Government-backed SBA loans help connect businesses with financing opportunities for a number of different purposes. These types of loans are notorious for their lengthy application review periods, which can stretch out several months. Loan amounts go as high as $5 million, with competitive interest rates and repayment terms that can last anywhere between 10 and 30 years. Most SBA loan programs also require a 20% down payment on the loan so that you're heavily invested in the success of the business. 

There are several different types of SBA loans to consider. A 7(a) loan is the most common one and the funds can be used for general purposes. Smaller 7(a) loans (under $25,000) don't require any collateral. SBA 504 loans are used to purchase a specific asset, like a building or machinery. 

Term Loan

Term loans can either be short-term (lasting less than two years) or long-term (lasting as long as 25 years). In most cases, these loans come with a fixed interest rate and consistent monthly payments so you know exactly what you'll pay back each month. If you use an online lender, you can often get approved and funded in just a couple of business days, making these an attractive option for businesses needing fast cash. A term loan can also help you better predict cash flow since the payments are consistent each month. 

The application process varies depending on the lender. A traditional financial institution, like a bank, may have a longer review process compared to an online lender. Also find out how long it takes to receive funds after your application is approved.

Commercial Real Estate Loan

Also called a commercial mortgage, a commercial real estate loan is designed to help your business purchase property. This could be an office building, retail store, warehouse, manufacturing facility, restaurant space, or other type of real estate. Loan amounts are typically large and the term length is extended to make payments more affordable. 

In addition to purchasing a property for your business, you can also use a commercial real estate loan to refinance the terms of an existing commercial mortgage or renovate a property you already own. If you dream of owning or expanding space for your company, a commercial real estate loan can help you do that. 

Business Line of Credit

Rather than giving your business a one-time injection of capital, a business line of credit gives you access to credit when you need it over a period of one to two years. It acts like a credit card in that you can draw on your credit line as needed and pay interest on your balance, rather than the entire available amount. 

A business line of credit can be an ideal type of commercial financing in a number of scenarios. For starters, a line of credit can be used for financial emergencies, like broken equipment that needs to be replaced. It can also help cover ongoing expenses, like payroll, especially if your revenue is inconsistent throughout the year. Finally, a line of credit gives you agility to act on opportunities as they arise, without having to apply and wait for financing in the future.

Pros of Using a Commercial Loan

Business loans can be a great way to manage and grow your company. Here are some of the primary benefits of using a commercial loan.

Access to capital: When your business’ current cash flow is not enough to get through slow periods or ramp up for busy seasons, getting a commercial loan gives them access to the capital to do so. And because there are so many different types of business loans out there, you can find one that's structured for your business needs. 

Faster growth: Taking on debt doesn't automatically mean your business is in trouble. In fact, many businesses often use debt to accelerate growth and take advantage of new opportunities to expand.

Retain full ownership: There are many ways to raise funds for your company, including taking on external investors. But with a commercial loan, you get to retain full ownership of your company.

Cons of Using a Commercial Loan

There are downsides to consider as well before you decide to apply for a commercial loan. 

Application process: The application process can be intimidating, and there's no guarantee you'll get approved. Be prepared to put in a little elbow grease. But if your business financials are already in order, then you may not have much to worry about. 

Interest and Fees: There's no such thing as free money, and you'll have to pay interest and fees on your borrowed funds. Weigh the benefits you expect to receive and make sure you can afford the payment terms, even in a worst-case scenario. 
Cash flow crunch: Making loan payments can be tough on your cash flow. Consider all the obstacles your business may face and how well you could maintain those payments before making a decision on your business loan.

Does commercial financing sound like a good fit for your business?

Apply for a small business loan and compare offers with Lendio.

Re-entering the workforce can be difficult after serving jail time as a convicted felon. Not only do felons lose their ability to vote and serve on a jury, they can also have difficulty finding a job to support a new positive lifestyle. Starting a business may be an opportunity to start fresh, but there may be some roadblocks when it comes to scaling growth. Understanding small business loan opportunities for felons can make the path to successful financing much easier.

Small business loans for felons.

Felons will have a harder time finding loans they are eligible for, but there are still some limited options available through the SBA.

SBA loans

SBA loans are backed by the Small Business Administration, which incentivizes lenders to work with qualified borrowers. Felons aren’t automatically denied, but there is an additional form you’ll have to fill out to be evaluated by your lender. Keep in mind that not all lenders who offer SBA loans will work with felons, and those who do will have very strict requirements.  

Qualification questions include if the applicant is currently facing charges (an automatic disqualification), if they have been arrested in the past six months, convicted of or pled guilty or no contest to a crime, or are currently on parole or probation. The applicant is then required to provide details regarding the charges and sentencing along with documentation that all fines and court conditions have been met.

There are a variety of SBA loans to explore, which can be used for things like purchasing real estate, buying equipment, or expanding or purchasing a new business. Most SBA loans are designed for established businesses rather than start-ups. 

Grants & other financial resources for felons.

In addition to taking out a business loan, it’s also worth exploring alternative options to raise capital for your company, including grants, investors, and crowdfunding.

Federal grants

Businesses owned by convicted felons are eligible for federal grants from Grants.gov. That’s because eligibility is based on the business’s background and proposals, not personal finances or history. Business grants are different from loans in that they don’t need to be repaid. Grants are listed on behalf of federal agencies, like the National Institutes of Health or the Environmental Protection Agency, to perform work or research on their behalf.

State grants

There are a number of state resources available through individual states. Most states have an economic development administration that receives federal grant funding to pass on to small business owners. Some of these may be specific to regional areas; for instance, you may find funding opportunities if your company operates in a designated rural region.

Entrepreneurship programs

Large corporations often sponsor programs to help launch and scale emerging businesses. They might provide grant funding or provide free products and services. FedEx, for example, hosts an annual program in which the winners are awarded a cash grant, plus services from FedEx. 

Angel investors

Angel investors are private individuals who use their own wealth to fund companies, often in exchange for equity. They’re currently the largest source of business capital in the U.S. And while you may need to disclose your criminal history as part of your pitch, they’re typically more focused on your business concept and growth opportunities than your background. There are several online platforms that connect entrepreneurs with angel investors, and of course, it’s also good to network locally. 

Crowdfunding

Two of the most common types of crowdfunding campaigns are rewards-based crowdfunding and equity crowdfunding. With the first option, you post a business idea and seek funding from individuals in exchange for a tiered system of rewards. With equity crowdfunding, you take money in exchange for partial ownership of the company. Most crowdfunding platforms require you to set a financial goal and won’t release any funds unless contributions reach that amount.

Resources for felons

HelpforFelons.org

HelpforFelons provides information and resources on how to find a job, housing, or start your own business when you have a criminal record.

Inmates to Entrepreneurs

Inmates to Entrepreneurs offers a free eight-week course to anyone with a criminal background who is interested in starting their own business.

freegrantsforfelons.org

This online resource provides information on housing, education, and jobs for felons.

If you’re looking to make a significant investment in your business, you might consider applying for a long-term business loan. These loans come with low interest rates and fixed repayment terms, so they’re a stable form of financing for companies of all sizes.

However, it’s important to understand the different types of long-term loans and long term financing available and the pros and cons of taking one out. This article will serve as a guide to finding and applying for a long-term business loan. 

What Are Long-Term Business Loans?

A long-term business loan is a loan you’ll repay over a specific period of time. The average repayment term lasts between 5 and 7 years, but some loans come with terms up to 25 years. 

Long-term loans are typically used to finance a major investment in the company—for example, for the purchase of real estate or equipment, or the hiring of additional employees. When you take out a long-term business loan, you’ll receive the money for such a purchase in one lump-sum payment, which you’ll then repay over time. 

These loans are usually best for established businesses with good credit history. And the application process can be quite lengthy—when you apply, you can expect to submit the following documentation:

• Social Security Number 
• Personal and business tax returns
• Personal and business bank statements
• Employer Identification Number (EIN)
• Proof of business registration
• Business plan
• Profit and loss statement
• Cash flow statement
• Balance sheet

Long-Term vs. Short-Term Business Loans

Occasionally, your business may need a quick infusion of cash to help you get through payroll or manage your working capital needs. In this scenario, it may make sense to apply for a short-term business loan.

The biggest difference between short-term and long-term business loans is that long-term loans are designed for long-term investments. In comparison, short-term loans can help you meet your immediate financial needs. 

Short-term business loans are usually available in smaller amounts and have to be repaid in less than a year. These loans also typically come with higher interest rates than long-term business loans.

However, the application and approval process is less extensive than that of long-term loans. And it may be easier for startups and borrowers with poor credit to qualify for a short-term business loan. 

Types of Long-Term Business Loans

There are several different types of long-term small business loans available depending on your business’s needs. Here are four different loan types you can choose from. 

SBA loans

An SBA loan is a business loan that’s backed by the Small Business Administration (SBA). Since the SBA partially guarantees the loan, this lowers some of the risk to lenders. 

And these loans often come with low interest rates and lengthy repayment terms. SBA loans come in all shapes and sizes, with loan amounts between $500 and $5.5 million and repayment terms between 5 and 25 years. 

However, SBA loans can be difficult to qualify for and the approval process can take a long time. If you decide to go this route, you should expect to provide your lender with extensive paperwork. And it may take several months for you to receive the funding for your loan.  

Bank Loans

Another option is to apply for a term loan through a bank. Like SBA loans, bank loans come with low interest rates and lengthy repayment terms, making them an affordable way for small businesses to get access to financing. 

However, these loans are best for established businesses with excellent credit history. You can expect to provide a lot of documentation when you apply, and the approval process will take longer than other types of loans. 

Equipment Financing

Equipment financing is a form of business financing that’s used to purchase business-related equipment or machinery. These loans can be a good option for heavy equipment needs, like restaurants and manufacturing and construction firms.

This business financing allows you to purchase the expensive equipment you need, and break the cost into manageable monthly payments. And since the equipment serves as collateral for the loan, equipment financing may be easier to qualify for. 

Commercial Real Estate Loans

A commercial real estate loan is a loan used to purchase property for your business, like an office, warehouse, or retail location. These loans are offered by the SBA, banks, credit unions, and online lenders. 

Commercial real estate loans can be used to purchase new property, renovate an existing location, or even refinance your real estate debt. These loans are available up to $2 million, and usually come with repayment terms between 5 and 20 years. 

Pros and Cons of Long-Term Business Loans

A long-term business loan can help you finance a major business investment, but it isn’t the best choice for everyone. It’s important to understand the pros and cons of these loans before applying. 

Pros

• These loans typically come with lower interest rates and fixed payment terms.
• Long-term business loans come with low fees compared to other types of loans.
• Most lenders don’t put any restrictions on how you can spend the funds.
• These loans can help you build your business credit. 

Cons

• These loans come with a lengthy approval process, especially if you apply for an SBA loan.
• It may be hard for borrowers with poor credit to qualify for a long-term business loan.
• Lenders usually prefer to give long-term business loans to established businesses.
• You may be required to put down some type of collateral to secure the loan. 

How to Qualify for a Long-Term Business Loan

Here are the four steps you’ll take to apply for a small business loan.

Decide Which Type of Loan You Need

There are several types of long-term business loans you can choose from. The one that’s best for you will depend on where you’re at in your business and what you plan to use the funds for.

For instance, if you’re an established business and are looking for low rates and flexible repayment terms, you may want to consider a bank or SBA loan. If you need to purchase equipment or large machinery, then equipment financing may be the right choice for you.  

Start the Application Process

Once you know what type of loan you need, you can start the application process. Depending on the type of lender you work with, you’ll either complete this online or in-person. 

When you apply, the lender will ask for some basic information about you and your business. They will also check your credit score to determine how risky you are as a borrower. A low credit score doesn’t necessarily rule you out from qualifying for a business loan, but you may receive a higher interest rate. 

Provide the Necessary Documentation

Next, you’ll have to go through the approval process and provide the necessary documentation. The exact documents required and timeline for approval will depend on the lender you’re working with. 

For instance, online lenders tend to offer a shorter approval process and faster funding. Whereas if you’re applying with a bank or the SBA, you can expect the approval and funding process to take much longer. 

Compare Your Options 

And finally, you don’t want to just take the first business loan that’s offered to you—it’s a good idea to compare loan offers from several different lenders. Comparing your options will help you find the loan with the best rates and terms. You should also consider any fees those lenders charge, like origination fees, late fees, and prepayment penalties.

Comparing your loan offers is easier when you use a service like Lendio. With Lendio, you apply for a loan once and receive offers from multiple lenders. 

The Bottom Line

A long-term business loan is a loan that’s repaid over a specific period of time. You’ll receive a one-time lump sum payment, which you can use to invest in long-term business growth. 

If you’re looking for a way to compare small business loan options, you may want to consider using Lendio. We offer a variety of small business loans, including SBA loans, term loans, cash advances, and much more. 

We offer a secure online application process, and you’ll receive loan options from our network of over 75 lenders. This will help you find the right business loan for your situation. 

What about your credit score? Whether you apply for financing for your small business or for a personal purchase, lenders will probably want to check your credit score before determining financing options. If this seems a little off-putting to you, don't be too concerned. The more you know about how your personal and business credit scores are used, the more prepared you’ll be for this sometimes stressful step.

What is a personal credit score?

A personal credit score is a number intended to serve as an indicator of how likely you are to pay what you owe. It’s based on a number of factors including: 

• how long you’ve maintained a credit-based product (like financing or a credit card)
• how often you use your credit
• how quickly you pay back what you owe
• how many times you’ve been late in paying back what you owe

Your personal credit score is expressed as a three-digit number between 350 and 800. The higher the number, the better your credit score is. 

What is a business credit score?

A business credit score is calculated using roughly the same criteria as a personal credit score calculation, but with a few more factors: 

• how long you’ve maintained a credit-based product (like a business loan or a credit card)
• how often you use your credit, how quickly you pay it back and how many times you pay late
• how many times you were late paying your rent or your mortgage, your vendor bills or your staff
• your personal credit score

Your business credit score is expressed as a two-digit number between 00 and 99. Again, the higher the number, the better your credit score is. 

And note that personal credit score is a factor in calculating your business credit score. This isn’t the case the other way around, and the reason it’s a factor is because lenders will want to know that the person they’re trusting with their money has a personal history of responsible debt service. 

Who determine your personal and business credit scores?

Why will business loan providers look at both personal and business credit scores?

Lenders and financiers may be looking for a number of things when checking credit scores, but at the heart of their research is the fact that they're attempting to assess the perceived risk of lending money to the applicant. Credit scores were developed as a fast means of identifying the risk. Note that different lenders may assess risk uniquely — credit scores are not the only factor consider by most lenders.

How do good and bad credit scores positively or negatively affect a business? 

The major benefit of a good credit score is an easier path to securing financing you might need for your business. Frequently, a higher credit score is assigned a lower interest rate because the risk of the applicant is considered lower low risk. It may also be a factor in how much financing your offered and the type of financing, too, while a not-so-perfect credit score is perceived as a greater risk.

Can a bad credit score get better?

Yes, a bad credit score isn’t like a scarlet letter. Try these tips for improving your business credit score. For personal credit, paying bills on time, paying down credit cards and any outstanding loans, and not applying for credit for a year are just some of the strategies that will have a positive impact on your credit score. 

Can a company with a bad business credit score still get financing?

Whether or not your credit score will allow you to borrow money often depends on the lender and the type of financing offered. Since lender requirements vary, the best way to find out if you're eligible is to apply to see what's available. A financing marketplace like Lendio simplifies the process by starting with a 15-minute online application that doesn't negatively impact the applicant's credit score. Additionally, Lendio's system works with more than 75 lenders and 10+ financing options, so you can find out quickly (and painlessly) what's available to your business.

Disclaimer: The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. Any content provided by our authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything.The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.