SBA Loans & Your Credit
If you are looking to get a small business loan from the Small Business Administration (SBA), you are going to have to qualify. Although the SBA does not directly provide loans to small businesses, it does work with approved partner lenders, who are the ones who extend the credit, provide the financing, and service the loan, to help provide small businesses with the resources that they need. Because the SBA reduces the risk to lenders, they are more willing to provide loans to businesses that might otherwise be considered too high risk for a traditional loan.
However, lenders working with the SBA’s SBA loan program follow guidelines set and established by the SBA. Therefore, there is going to be a little variation in whether lenders will choose to finance your SBA loan. If you are ineligible with one lender, you are unlikely to get credit from others.
Types of SBA Loans
There are three main types of loans available to small business owners: 7(a) loans, 504 loans, and microloans. Each type of loan serves a different purpose and is geared towards a different type of business. 7(a) loans are for short or long-term working capital, often used to refinance current debt, and can be used to purchase non-real property. The 504 loans are designed for major fixed assets and are available through Certified Development Companies. Both 7(a) and 504 loans have an upper limit of $5 million. In contrast, microloans are designed for much smaller businesses and provide up to $50,000 for small for-profit businesses and some non-profit childcare centers. They are funded through intermediary lenders.
Some of the benefits of SBA loans are that their rates are competitive, even though they may be available to people who would not qualify for loans through a traditional lending structure; they come with support that can help you make wise financial decisions for your business; and they may require low (or no) collateral, lower down payments, and allow for higher overhead costs than traditional loans.
However, there can be drawbacks to using the SBA loan program. Defaulting on an SBA loan can impact your future eligibility, not just for SBA-guaranteed loans, but also for other government programs. Fortunately, right now the SBA is working in conjunction with COVID-relief funding to help provide financial help for struggling businesses.
Credit Repair for SBA Loan Approval
When applying for an SBA loan, keep in mind the reasons why lenders reject SBA loan applications. According to the SBA, the most common reasons that lenders reject the applications are: criminal history, student loan defaults, too many assets, and poor credit. Credit and the number of assets you have are sometimes related.
Many people believe that businesses have to show a positive cash amount to be eligible for SBA loans. They may hold onto cash and carry items on credit, which impacts the credit score. If you have a lower credit score, but significant cash reserves, consider spending down your cash reserves. In doing so, you will have a smaller amount of debt. With this lower debt, lenders will not consider you too asset-heavy to qualify for an SBA loan.
For most people who have their SBA loan applications rejected because of poor credit, the issue isn’t easily resolved. The SBA does not have any credit cutoff guidelines. Some lenders will be slightly more willing to take on risky clients. However, most people who obtain SBA loans have good or excellent personal credit. If you do not, then you want to repair your credit before applying for the loan. This will maximize your chances of success.
A Comprehensive Approach
At Emerald Credit Solutions, we take a comprehensive approach to helping you improve your credit score. It begins with a personal analysis of your credit situation. In this analysis, a credit advisor looks at your credit reports to determine why you have your current credit score. Understanding what is causing the low credit score is the first step to fixing it. This helps shape the personalized repair plan that is right for you.
What most people do not realize is that the majority of credit reports contain some type of error. These errors can include, but are not limited to: delinquencies, charge-offs, late payments, balance errors, inquiries, collections, personal information, and negative items. While a single error might not be enough to impact your credit score, several of them can lower it dramatically.
Credit Repair SBA Quick Note
SBA.Gov states that your personal and company credit histories will be reviewed when applying for an SBA Loan. Prudent lenders prefer applicants who have a history of meeting their obligations. If your credit record has blemishes you should reach out so we can help start the Credit Repair Process.
Our Credit Solutions
We offer several different levels of plans to help you raise your credit to the good or excellent status. You will need such a status to qualify for an SBA loan. Our entry-level plan includes a personal credit advisor, a full credit analysis, unlimited disputes and challenges to the credit bureau, unlimited inquiry disputes, and corrections or adjustments to all credit errors. Higher-level packages include those items, but may also tackle items like liens and preparing for approval. Contact Emerald Credit Solutions to see how we can help you.