If you are considering buying or selling a business or a franchise, SCORE just completed 6 videos in a five part series addressing exit strategies and purchasing a new business or a franchise. You can view all SCORE Business TV episodes on the SCORE Manasota website. Today's video will address the question of how to secure a small business loan.
SCORE is a 55-year-old nationwide non-profit organization providing free mentoring services to business owners. Our SCORE experts are here to guide you safely through that minefield.
Credit for Small Business
Both early stage and mature businesses are faced with the challenge of seeking debt financing at various times in their business cycle. In this video, we'll guide you through the search and qualification process with a credit expert. That credit expert is Gerri Detweiler. Gerri is the education director for Nav, the only website that gives business owners free business and personal credit scores and then matches them to financing. She's been helping individuals and small business owners navigate the confusing world of credit for more than 20 years.
Small Business Loans Options and Questions
In this video, host Dennis Zink and his expert guest, Gerri Detweiler, discuss the following topics:
Why Business Loans are GUARANTEED by the owner
What’s the best way to check personal credit
How you can improve your credit scores
Some mistakes people make regarding personal credit
Consolidating credit cards into one lower interest payment
Main differences between personal and business credit
Percent of owners who finance their business with credit cards
The impact of under-capitalization on business success rates
Where business owners typically get funding to start a business
The 8 types of financing available to small businesses
Why a business owner should obtain a business credit card
What Nav does to help make sense of obtaining credit
The cost of online lending
The criteria used in evaluating your credit
What credit scores are required to obtain financing
What options are available for a person with poor credit
The common mistakes made regarding business credit
What trade credit is and why it’s the third most widely type of financing
What you may not know about SBA loans
What happens if you are turned down for business credit
Business Loan vs. Personal Credit Card?
“One mistake I see with business owners is they think their personal credit card is the way to finance their business and the problem with that is that that activity on that personal credit report, credit card always shows up on your personal credit report. So, if you max out a credit card, that impacts your credit. I'll give you an example. I talked to an advisor who was working with a small business owner. Her financing fell through at the last minute, so she maxed out all her personal credit cards and her credit scores dropped, because of those high balances. Once she got a business loan and refinanced with a business loan that didn't impact her personal credit, her credit scores jumped 125 points. So, it can have a significant impact. So, I would recommend that business owners think about using the right credit card if they're going to use that to fund their business,” said Gerri Detweiler.
“A lot of business owners sort of bootstrap it, right? So they turn to their personal credit cards or personal savings, maybe they tap their retirement account, friends and family, all those kinds of funding. And it is tricky when you are starting the business. There are some more limited financing options available. But one thing I want to point out is that across the country there are economic development organizations and what are called CDFI's, community development financial institutions, and they're trying to lend money to small businesses to grow jobs and benefit a community. And those lending options may be available to young or startup businesses with a solid business plan. So, I would encourage business owners to talk to their SCORE mentor and find out what the landscape is locally and see if there are funding options that may be available, even if their business is fairly young. And then of course the other startup option is the business credit card, because most business credit cards don't care whether you have business revenues. They're going to check your personal credit and look at income from any source, including a day job, a spouse's job or any other income that's available. So, that's another source for startup financing as well,” Detweiler added.
Getting an SBA Loan
“The small business administration guarantees loans and they have a variety of loan programs. There are a lot of different loan programs available. The thing to think about with SBA is that if one financial institution can't give you an SBA loan, that doesn't mean no one can, because each individual lender, in addition to the minimum requirements set by the SBA, will have their own requirements. So, don't get discouraged if your first initial foray into looking at SBA loans doesn't turn out to work. Now, if you have some serious challenges, credit challenges, or other issues that are not going to qualify you for a loan, that's one thing, but look around, because there are different lenders that may want to work with you,” said Gerri Detweiler.
“7(a) is the most popular program in the SBA loan program. Loans can go up to $5 million and they can be used for a lot of purposes, working capital, even to refinance debt. So, it's an extremely popular loan program. One of the qualifications for a 7(a) loan, if it's $350,000 or less, is that they're going to check a credit score called the FICO SBSS score. That's a FICO score that is developed just for small business. It can look at your personal credit, as the owner, your business credit of the business, and it can even include financial data of the business as well,” added Detweiler.
Dennis Zink, SCORE Manasota Chapter Chair
Gerry Detweiler, Education Director at Nav
Next SCORE Business TV Episode
The SCORE Mentor and Client Experience
SCORE Can Help
To get help securing a small business loan, request a free SCORE mentor by completing this form today!
SCORE Business TV is Sponsored by
Copyright © 2023 SCORE Association, SCORE.org
Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.