Tips to make a good personal loan

Personal loans can be a great way to solve cash flow problems. They can help you consolidate your debt, pay bills or help you out of an unexpected financial bind. You can even use a personal loan to fund a new business venture. Personal loans are great for many purposes as long as you do not use the money for frivolous things you really cannot afford. Additionally, any time you take on new debt, you should understand what you are getting into. Here are ten important things you should know that will help you find a great deal on a personal loan.

Know your FICO Scores

A large part of what determines whether or not you are approved for a loan and how high the interest rate is depends on your credit report. A lender will typically pull credit reports from Experian, Equifax and TransUnion and compare your credit score from all three. If you know your scores before you apply for the loan, then you can get a ballpark idea of what interest rate percentage you should be eligible for.

Check Your Reports

While you are looking at your FICO scores, check your credit report for errors. All too often people end up with lower scores than they should because of errors on their credit report. If you can find and correct these errors before you apply for a loan, then you will greatly improve your chances of getting favorable loan terms. It can take up to 30 days for the bureaus to resolve these errors, so you should pull your reports as early as you can.

Shop Around

Different lenders have underwriting guidelines, so not all their offers will be the same. Fill out an application at a website like personal loans or even and they will submit your application to different vendors. Applying online is faster than going to multiple banks and online lenders tend to have higher approval levels and better loan terms. You are not obligated to accept any offers once you fill out the application, but is a nice, quick way to make comparisons.

Know the Fees

Almost all personal loans have fees besides principle and interest. Examine all your loan offers carefully and look for “hidden” fees. Sometimes a lender may charge a lower interest rate, but charge higher fees to make up the difference. In these cases, you want to make sure you know the total cost of the loan so that you can compare apples to apples. What looks like a good offer on the surface could be loaded with fees.

Figure Out What You Can Afford

The longer you have a loan out, the more interest you pay. Before you even apply for a loan, you should know how much of a monthly payment you can reasonably afford. If you do not already have one, set-up a budget to figure out how much you can pay each month. Once you have determined your monthly amount, try to get a loan agreement that allows you to pay back the loan as fast as you can without going over your budget.

Repayment Penalties

Lenders lose interest if you repay the loan early. Some lenders will include penalty fees for paying off the loan early. Your best bet, if possible, is always to get a loan with no early repayment penalties. The exception to this rule is cases where you know you can pay the loan back early and the fees for repaying the loan will save you more money in interest payments than you have to pay in fees.

Type of Interest Rate

There are two types of interest rates, variable and fixed. Fixed interest rates tend to be higher, by comparison, when you take the loan out, but your monthly loan payment will always remain the same. Variable interest rates may be low when you take out the loan, but as the interest rates changes so do your loan payments. On the surface, a variable interest rate may seem attractive, but a fixed interest rate is your safest bet.

Loan Insurance

Payment protection insurance is also known credit protection insurance, loan repayment insurance, or other similar names. It is any type of insurance that pays on your loan if you cannot make the payments for some reason. Some people consider it a valuable investment; others consider it a waste of money. If you do decide to purchase loan insurance, shop around for different quotes. Do not assume the lender offers the best price.

Unsecured vs. Secured Personal Loans

Unsecured personal loans tend to come with a higher interest rate because the lender is taking a bigger risk. If you have any assets that you can use as collateral to secure the loan, you will most likely get a better interest rate. The downside to this is that if you default on the loan, you are putting your personal assets at risk. This is another reason it is important to be certain you can afford the loan payments.

Have Your Documents Ready

A startling number of loans are rejected every day simply because the applicant did not provide all the required financial documentation. Even worse, the loan underwriter may charge you a higher interest rate because he or she did not know your complete financial picture. Be sure to gather important paperwork like tax forms, checking account statements, deeds, title and everything else that the lender requires. Do not submit an incomplete application.

Applying for a personal loan can be a little bit stressful, but getting a loan can be a huge help when you need it. Even though you may feel like you are at the lender’s mercy, you really are not. You are the consumer and if a lender wants your business bad enough then that lender will work with you to come up with a good loan deal. Just be wary of lenders who use high-pressure sales techniques. Be certain to base your borrowing decision on facts that make good financial sense and not on a sales pitch.




4 Tips on loans for teachers

If you are a teacher, no doubt you picked your profession based on your love of children and education and not for the money. Starting teacher salaries aren’t that high and if you’re also dealing with the burden of student loans, that salary may seem lower still. But there are some great programs teachers can use to get their loans forgiven or cancelled simply by doing their job. If you are a teacher, this is great news. And if you are a degreed professional suffering under the weight of student loans, this could be an inducement to consider a career change to teaching.

There are both federal and state programs that can help forgive and cancel out student loans and the great news is that many state programs allow you to double dip and utilize multiple avenues at once to maximize the amount of student loans you can unload in exchange for teaching. Without a great plan, student loans stand as little a chance of forgiveness as Lance Armstrong. Here are the four ways teachers can get student loans forgiven or cancelled:

  1. Federal Public Service Loan Forgiveness (PSLF)

I’ll start with the worst of the programs… PSLF came online in 2007 as a way to encourage people to work in full-time public service jobs. This program forgives eligible federal student loans – by eligible they mean William D. Ford Direct Loans (including direct subsidized loans, direct unsubsidized loans, direct PLUS loans and direct consolidation loans). Though the program was implemented five years ago, not a single penny of student loan balances has been forgiven. Check out these PSLF eligibility requirements and you’ll quickly see why:

Before any of your loans will be forgiven, you must make 120 on-time, full amount, monthly payments on your direct loans.

Only payments made after 10/1/2007 qualify.

You must have been working full-time at a qualifying public service organization (schools count) when the payments were made.

That means you must have made 10 years worth of student loan payment while working in public service. And with a start date of October 2007, no forgiveness will start until October 2017. To my thinking, that’s not much of an inducement to work in public service. But if you are a teacher and still owe money come 2017, this could be a good program for you! You can access the PSLF certification form here.

  1. Federal Teacher Loan Forgiveness

This program is aimed at encouraging people to become and remain teachers. If you work for consecutive full years in a qualifying school, you could have up to $17,500 of student loans forgiven. This program is good for loans established after 10/1/1998 but you can’t be in default. At least one of your five years of teaching must have been after the 1997-1998 academic year. Eligible loans include direct subsidized and unsubsidized student loans, Stafford subsidized and unsubsidized student loans. Here are the eligibility requirements for the teacher loan forgiveness program:

The school you teach at must be in a district that qualifies for Title I funding.

The school must have more than 30% of enrollment qualified for Title I services.

The school must be listed in a directory of qualifying schools published by the government.

If your school qualifies in one of the five years, but not the others, you are likely still eligible.

As an alternative, you can work at a qualifying educational service agency.

The amount of forgiveness varies. Most teachers can have $5,000 of loans forgiven. But you can have up to $17,500 of your student loans forgiven if you are a “highly qualified” math or science teacher at a secondary school or a “highly qualified” special education teacher working with disabled children in your area of specific training. You can get an application for the Teacher Loan Forgiveness program here.

  1. Federal Perkins Loan Cancellation Program

The Federal Perkins loan cancellation program is much more lenient in how much of your student loans it will cancel out. You can have up to 100% of your Federal Perkins loan forgiven. Better yet, you only have to teach full time for one full academic year (or two consecutive half years within a 12 month period) to see some benefit. For the first two years, you can have 15% cancelled each year. For years three and four, you can have 20% cancelled each year. For year five, you can have the final 30% of your loans cancelled. Here are the eligibility requirements for the Perkins loan cancellation program:

You can teach in a school that serves low-income families; or

You can be a special education teacher (including infants and toddlers); or

You can teach in math, science, foreign language, bilingual education or any other field your state has determined is in shortage.

You can also qualify for teaching at a private school if it’s a nonprofit. You can qualify if you teach part-time at multiple schools so long as you meet the other requirements. Preschool and PreK teacher can qualify if the state you teach in considers these part of their elementary education program. To find out if your school qualifies as low-income, check this database. The amount cancelled each year also includes all interest that accrued that year. To get the application form for this program, contact the office at your alumni institute that administers the Federal Perkins Loan program.

  1. State and City Sponsored Loan Forgiveness Programs

There are loads of state sponsored student loan forgiveness programs. In fact, there are way too many to list here. The good news is, the American Federation of Teachers (AFT) has compiled a searchable database of loan forgiveness programs, grants, awards and classroom donation programs. You can specify loan forgiveness, select your grade level, your subject area and state and you can see what student loan forgiveness and cancellation programs are available in your state. Your local school board should be able to provide you information on any county or city funded forgiveness programs. In the meantime, while you’re searching for forgiveness and cancellation programs, it’s wise to consult an expert to help you manage your student loans to optimize your debt.



Great tips on loans

Despite what some false headlines making the rounds on April 1 and earlier have said, President Barack Obama will not forgive all student loans.

Regardless of what you’ve seen, or what you may hope, there’s no executive order coming to wipe your student loan slate clean. However, that doesn’t mean there aren’t real ways to get rid of your student loans without paying them.

[Find out how proposed legislation could affect student loan borrowers.]

The Consumer Financial Protection Bureau estimates that about one-quarter of workers in the U.S. qualify for Public Service Loan Forgiveness and fail to take advantage of it. That’s a true story that sounds hard to believe.

Make sure the prank isn’t on you by checking out these answers to commonly asked questions about the program.

  1. What is Public Service Loan Forgiveness? This federal program eliminates, or forgives, federal student loans for specific borrowers. To qualify, you must be employed full time in an eligible public service or nonprofit job, and you must have made 120 eligible on-time payments in no less than 10 years.

Payments don’t have to be consecutive, so you can gradually work toward forgiveness over time. However, only eligible payments made during eligible employment count toward that 120 number.

  1. What counts as an eligible payment? Any payment made on a loan from the government’s direct loan program is eligible. If you have other federal loans, you can consolidate them into this program to potentially qualify. However, any payments you’ve made up until that point won’t count toward your 120.

[Get answers to common student loan default questions.]

  1. What jobs are eligible? Many people assume that only teachers, social workers or other public servants are eligible for this program, but that’s a total myth.

The truth is that it’s not what you do that makes you eligible for loan forgiveness, but rather whom you do it for. Any employee who works full time at public or nonprofit institutions can be eligible for forgiveness. Yes, anyone – whether you spend your time in the boardroom or the mailroom, you can qualify if you make eligible payments.

  1. How can I tell if my job is eligible? The easiest way is to ask your employer. As part of their push to raise awareness about loan repayment options, the Consumer Financial Protection Bureau created a handy guide to help your employer help you. If your human resources team isn’t sure whether your company qualifies, that guide should point them in the right direction.

Some eligible employers include AmeriCorps, Peace Corps and many 501(c)(3) nonprofits, including those in the public interest law, health and disability services fields. Labor unions and partisan political organizations are not eligible, even if they are nonprofits.

Workers at religious organizations are also ineligible, but only if their job functions include engaging in religious activities related to religious instruction, worship services or any form of proselytizing.

[Check out five sources of free college financial aid help.]

  1. How do I apply? Contact your student loan servicer – the company you make your payments to – and confirm their procedure. Download a PSLF Employment Certification to help you track your progress.

You can submit that form to your servicer once a year. If you don’t do this, you will be responsible for producing pay stubs or other proof that you worked at an eligible employer when you officially apply for forgiveness.

  1. Are there other forgiveness programs available? Absolutely. Multiple federal and state loan forgiveness programs exist. Check out this loan forgiveness e-book from SALT™ for an almost-comprehensive list.


Tips for retired personal loan

Living on a fixed income is not always easy. Unfortunately, retirees often encounter unexpected situations that they do not have enough money in their savings account to cover. It might be something simple like an appliance breaking, or it could be a medical emergency. While older people tend to have good credit scores, they also have a limited monthly income, which may worry lenders. If you need to apply for a personal loan, here are some tips to increase your chances of being approved.

Figure Out What You Can Afford

If you do not already have one, create a budget that shows your income and your expenses. For one thing, it will help you figure out how much of a loan payment you can afford. Secondly, it will also give you something to present to the lender that shows that you will be able to repay the loan. Even if you find out you can afford to borrow more money than you thought, only borrow as much as you need. Do not go any further into debt than you have to.

Try Alternative Lenders

Going into a traditional bank may not be your best option. Online loan referral websites allow you to fill out one application and then they match you up with potential lenders. You can easily evaluate the different offers to find the one that best suits your needs. Make sure that you get a fixed interest rate loan no matter which lender’s offer you accept. The last thing you want is for your loan payments to go up unexpectedly.

Check Your Credit Report

Because they often do have good credit, senior citizens present a very attractive target for identity thieves. Pull your credit reports from Trans Union, Experian and Equifax and make sure there are no accounts on there that do not belong to you. Sometimes accounts between family members, such as fathers and sons with the same name, can get mixed up as well. Examine all three reports and dispute any errors if you find them.

Secure Your Loan

Another way to help alleviate lenders’ concerns about your income is to use assets to secure your loan. Many people use their home as collateral. If you have a 401k plan or a ROTH IRA that you do not want to tap into, you may still be able to use that as collateral for your personal loan. Cars, watercraft, and even some investments are all things you may be able to use to secure your loan. Secured personal loans often come with better interest rates as well.

Getting a personal loan is difficult for most people, but it can be even more difficult to do after you are retired. However, do not let lenders intimidate you or try to talk you into loans that do not make good financial sense. If you have all your paperwork together and you carefully research your options, you will eventually be able to find a lender who will offer you a loan with reasonable terms.

Editor’s View: I agree that it is likely difficult to obtain such a loan for those who are retired, simply because income streams are usually not such to where a lender would consider you a good risk.  If you are not too far along into retirement and finding yourself in this situation, you may well want to re-consider whether you’re truly ready for retirement.  Obtaining loans will get increasingly difficult, and will have more ramifications on your overall retirement strategy the further into your retirement you get.

About the Author: Dona Collins is a personal finance specialist and writer with a passion for helping other succeed financially.



Tips loans for retired

Good credit is like a muscle: You either use it or lose it. And that can be an issue for a lot of empty nesters and retirees.

Empty nesters, baby boomers and retirees have a big advantage when it comes to credit. Not only do they have a long history of using it — a big plus for the credit score — but often they also have deep-sixed a lot of their debt.

“(They) are probably financially in a much different position than younger cardholders, from the standpoint that most of their debt has been retired,” says Norm Magnuson, vice president of public affairs for the Consumer Data Industry Association, a trade association for consumer reporting companies.

But empty nesters and retirees also have some special credit needs and concerns. While they might not use credit as much as they did in their 30s and 40s, their scores — which can determine what they pay for insurance, if they pass muster with leasing and utility companies and whether issuers will maintain credit limits — are still important to their financial well-being.

Want to keep your credit strong and vital as you sail into and through retirement? Here are seven strategies to help.

Credit scores reward longevity. The longer you’ve held an account with a good record, the better it is for your score.

Because many empty nesters and retirees have credit accounts they’ve maintained for 20 or 30 years, that gives them the edge when it comes to getting good scores, says Barry Paperno, consumer affairs manager at FICO, the company that created the FICO score. Even some small mistakes will hurt less with decades of good behavior to dilute their effect on the score, he says.

This benefit is also a good reason not to close long-held accounts just to simplify finances as you approach or enter retirement. Eventually closed accounts will come off your credit report, which could shorten the length of your credit history and negatively affect your credit score.

Closing accounts can also lower your score for another reason: Your available credit decreases. Because a large part of your score looks at how much credit you use versus how much credit you actually have, decreasing your available credit affects that ratio and can lower your score.

Scoring models give you points for various things that the score developers see as signs of responsible credit management. One of the items on the list: You carry a mix of different types of credit.

Having a mix of credit means you have revolving credit such as credit cards, and installment credit such as a home, car or furniture loan, and are handling both types well.

As you get older and pay off loans, it’s possible that you will find yourself with just revolving credit.

While that might be an issue for a younger consumer, it’s not a big deal for an older one, says Paperno. “It’s a very minor issue, especially for people in this stage of life,” he says. “They do not need to worry about that.”

What you may not realize: If you co-sign for a card or loan, it’s added to your credit report just as if it’s yours. And that debt is included in your debt load if you apply for credit or a mortgage.

It can also sink your credit score. When you’re using a higher percentage of your available credit, your score can go down. If you have $10,000 in available credit on your credit cards and charge $1,000 total on your cards, your utilization ratio will be 10 percent. Staying under that utilization ratio is optimum for a good credit score. However, if your adult child maxes out that co-signed card at $5,000, you’re now using 40 percent of your overall available credit. And your score would likely drop.

You’re also on the hook for the debt if the borrower defaults.

“I am not a fan of co-signing under almost any circumstances,” says John Ulzheimer, formerly of FICO, and president of consumer education for For empty nesters and retirees, it can be especially detrimental, he says. On a fixed income, “co-signing for a loan is like having a piano dangling on a string over your head,” he says.



Loans for student tips

 It’s that time of year again … tax time! Whether you like it or not, April 15th is inching closer, and knowing how to handle student loans on your tax forms can help you save money.

Student loans and taxes — two of your favorite things, right? Okay, we know both can be confusing and frustrating. But here are the facts you should know to help you make sense of it all during tax time.

5 key facts about student loans and taxes

  1. Are student loans tax deductible?

While many people may be eligible for the student loan interest deduction, it’s important to know that only the interest (not the payments) is deductible up to $2,500. Depending on interest paid and your income, you can get up to $625 back using this deduction.

  1. Credit card interest could be tax deductible too

…If used toward qualified education expenses. The catch: every item charged to the card has to be exclusively for qualified expenses or you can’t write it off at all.

Eric J. Nisall, founder of AccountLancer, stated, “Even a single non-qualified purchase on the card makes all the interest non-deductible.”

  1. Student loan help through your job

If your employer helps pay off your student loans, it might be considered compensation and subject to payroll taxes.

  1. What about gifts from family?

If you get the deal of a lifetime and your parents or another relative pay off your student loans, it will be considered a non-taxable gift to you. However, the benefactor in question may need to file a gift tax return and pay taxes on the total gifted.

  1. Tax implications of default

If you stop making payments and default on your student loans, Uncle Sam may intervene and garnish your tax refund until your debt is paid off.

How to deduct student loan interest

Student loans are a drag, but as mentioned above, the good news is you can at least write off some of the interest.

According to the IRS, you can claim this student loan tax deduction if all of the following apply:

You paid interest on a qualified student loan during the 2015 tax year

You are legally obligated to pay interest on a qualified student loan

Your filing status is not “married filing separately”

Your modified adjusted gross income (MAGI) is less than a specified amount, which is set annually

You or your spouse, if filing jointly, cannot be claimed as dependents on someone else’s return

In order to qualify for the interest deduction on your 2015 taxes, your MAGI must be less than $80,000 ($160,000 for couples filing jointly).

Both federal and private student loans qualify for this deduction. If you paid at least $600 in interest (which isn’t hard to do, sadly), be on the lookout for student loan tax form 1098-E  from your loan servicer, which illustrates how much interest you paid throughout the year. You’ll input that amount on tax form 1040.

You can make the process even easier by using a service like TurboTax or TaxACT, or by seeking professional help from an accountant.

Something to note is that only you, the borrower, can deduct the student loan interest on your taxes. If Mom and Dad help you out with some student loan payments, they are not eligible for this student loan tax deduction.

Nisall explained, “Only the person who is legally obligated for paying the debt is allowed to claim the deduction. The person who is legally obligated doesn’t have to make the payments, but is the only one who can claim the deduction. Even if the legally obligated person is claimed as dependent, the taxpayer claiming the legally obligated person still cannot take the deduction.”

Refinancing and the student loan tax deduction

We’ve talked a lot about student loan refinancing on Student Loan Hero. It’s one of the best ways you can consolidate your loans into one monthly payment and potentially get a lower interest rate, too.

If you choose to refinance, you may wonder if your student loan interest is eligible for tax deductions.

The verdict? Most likely. “As long as the money from the loan was used for qualified education purposes, interest paid on refinanced loans is eligible for deduction,” said Nisall.

But if you refinance more than the original value of your student loans, probably not. Nisall added, “However, if a loan was refinanced for more than the original value, and the additional money wasn’t used for qualified education expenses, none of that interest is deductible.”

As you can see, there are many nuances to student loans and taxes. When in doubt, talk to a tax professional about your individual situation to see if you’re eligible for any deductions or credits.

Get your paperwork ready early, such as your 1098-E (typically available by January 31) and get your taxes over with. Who knows, you may even get a refund, which you can put toward your student loans!

Either way, starting early and being organized can make tax season a lot less hectic and stressful.



How to get the best auto loan

Some consumers will spend days making sure they get the lowest price on a vehicle, yet they won’t bother to shop for the best auto loan. If you don’t have financing in place when you visit the dealership to buy, you’re leaving yourself vulnerable to whatever terms the dealer offers, which may have a much higher interest rate than you could get elsewhere. And dealers often mark up the interest rate of a loan over what you actually qualify for, which can cost you hundreds of dollars extra.

Ultimately, you want to balance a loan’s total cost against a monthly payment you can afford. But if you concentrate only on the monthly payment, you’ll increase the chances that you’ll unknowingly end up with a bad deal. It’s also smart to face reality before setting your sights on a dream machine, for more check how much can you afford to spend on a car?

Keep an eye on a loan’s total cost

When comparing loans, the figure to focus on is the annual percentage rate (APR), which varies from day to day. A lower rate can produce significant long- term savings. For example, a three-year, $15,000 loan at 5 percent APR would save you nearly $500 overall, compared with the same loan at 7 percent.

Another key consideration is the term of a loan, which can significantly affect both your monthly payment and the total cost of your financing. A shorter term means higher monthly payments but less money paid overall. Try to keep the length of the loan as short as you can afford.

A three-year loan costs far less overall than a five-year loan. For example, if you borrow $15,000 at a 6.5 percent APR for 36 months, your monthly payment will be $460, and the total interest will be $1,550. The same loan stretched out to 60 months would lower the monthly payment to $293—over $150 less—but increases the interest by $1,060 to a total of $2,610. And that doesn’t even take into account that longer loans often have higher interest rates.

Another concern with long-term loans is that they lengthen the time before your payments begin building equity in the vehicle. For example, with a 60-month loan, it might take 18 months of payments or longer before the car is worth more than you owe on it. This means that if you want to trade in or sell the car early, the price you’ll get won’t cover the amount you still owe, also called being “upside down.” The same is true if the car were stolen or destroyed. Your insurance payment won’t be high enough to pay off the rest of your loan.

You can reduce this period by taking a shorter loan. For example, with a three-year loan, you already might have built thousands of dollars of equity in the vehicle by the end of the first year.

You can avoid being upside down by making a significant down payment. When financing the purchase of a new car, we recommend having a trade-in or down payment of at least 15 percent of the total cost.

Where to shop for an auto loan

Walking into a dealership with a guaranteed auto loan in your hand gives you bargaining power and flexibility. It also helps you avoid the common sales tactic of mixing up the vehicle price with financing costs. On the other hand, going into the dealership without doing research on how you are going to finance your purchase is setting yourself up to overpay.

One place to start your search for a loan is at The website shows you the current average loan rates nationally. And by entering your ZIP code, you can see some offers tailored specifically for your area. But the site often doesn’t include a lot of local lenders or, in some cases, national ones. So it’s worth checking with individual institutions, as well.

A dealership may be able to offer you the best financing terms. But you should still do your homework beforehand by carefully shopping for the best loan offers so you have a comparison point.

Also, taking the automaker’s low- or zero-percent financing often means having to pass on a rebate, since your choice generally is one or the other, not both. But you often can get the best of both worlds by taking the rebate from the dealer and getting financing elsewhere, even if the interest rate is higher than the promotional one from the manufacturer.

To use the loan-versus-rebate tool, you’ll first need to shop for the best alternative rate. Here are some places to look:

Local banks. Banks generally have very specific, conservative loan policies and may only cater to those with better credit references. As such, banks are in a position to offer some very com­petitive loan rates. Since you probably have a relationship with at least one bank already, that might be a great place to start your financing search. Most banks have websites where you can check their current loan rates, but if you decide to apply for a loan, you should stop by a branch office and deal with a real person. It’s a good way to control where your personal information goes, and by avoiding mistakes or misunderstandings, you might walk out the door with a pretty good interest-rate offer.

Local credit unions. Credit unions operate a bit like banks, but they lend money only to their members, who are also owners of the credit union itself. Because credit unions are nonprofit, their operating costs are fairly low and their lending rates can be quite competitive. Many people belong to credit unions just to take advantage of the convenient loan policies.



How to Get a Small Business Loan

Getting a small business loan is rarely easy, especially if you’re planning to start a new business or have just recently started one. But, even if you have been in business for years, with today’s economic climate, banks and other financial institutions have become a lot more selective.

In fact, 82% of small business loan applications are currently being denied by the big banks. Why are banks saying “no” to small businesses? It’s partly because they’ve had to take more risk out of their portfolios (after all they are lending with our money), and small businesses are inherently riskier than large businesses. As well, it costs banks just as much to underwrite large loans (over $250k) as it does small loans. But, most small businesses don’t necessarily need a larger loan. So, what can you do if your business needs funding?

Luckily, hundreds of online lenders have popped up to fill the void left by the banks. These online lenders are approving more loans than the bank, but you are still going to have to invest some time in finding a loan. If you are wondering how to get small business loan, the best possible advice we can give is that if you understand what these online lenders are looking for, you’ll be better positioned to navigate your way through what can often be a very complex loan application process. Preparing as much as you can beforehand will help you save massive amounts of time down the road.

Six Steps for Getting a Small Business Loan

Here are six tips on ways you can improve your chances of getting your small business loan approved.


You know your business has great potential – otherwise you wouldn’t have started it – but if you can’t quickly and clearly communicate that compelling story to a lender, it will be more difficult for that lender to understand how the loan you want could improve your business prospects.

So it’s important that you create and refine a story that describes your business and its potential in just a few sentences. You should be able to explain in a short “elevator pitch” why your business will grow, what your specific competitive advantages are, and perhaps most importantly, why you need a small business loan and what you’ll do with the money.

Before asking how to get a small business loan, be sure you can answer WHY you need a small business loan.


The Small Business Administration (SBA) offers loan programs that can sometimes make it easier to get the funding you need, at the lowest interest rates available outside the bank.

Although the SBA does not directly loan money, it does partially guarantee loans that a bank might not otherwise make. This allows bankers to be somewhat more flexible in issuing you a loan.

But while lending standards for SBA loans can be a bit looser than for standard small business loans, bankers will still require extensive documentation. The process of getting an SBA loan may not be easier than that required for a traditional loan, but the chances of getting approved can be higher, especially if you have collateral and a good business history.

For newer businesses, the SBA has a “MicroLoan” program, where funds are made available through non-profit community-based lenders, but the maximum amount you can borrow is $50,000.


Evaluating your potential success in getting a small business loan has a lot to do with these three business metrics: annual revenue of your business, your average bank balance and your available collateral.

Annual revenue: Lenders are going to want to see that your business is making money. The higher your revenue, the better (after all, it shows you have the money to pay back the loan). An annual revenue of $250,000 is pretty solid, in terms of getting a loan. $500,000 is stellar. Having less than $250,000 won’t result in an automatic decline, but it could limit your options.

Average bank balance: You could be great at making money, but horrible at managing it. That’s why your average bank balance is also important to lenders. Lenders are going to want to see that you have some cash on hand, verifying you have a cushion to keep up with loan payments even if your sales dip for a bit. An average bank balance of $5,000 is a good start. $10,000 is solid. Keep in mind that the larger the loan amount you are seeking, the more cash on hand you will need.

Available collateral: In order to help offset risk, many lenders will require collateral. This way, if you are unable to meet loan payments, they have a way to make back their money lent. They will first look at your business assets (more on personal later) as possible collateral. Potential sources of collateral include business assets such as equipment, real estate and inventory.


In the end, your chances of getting a loan depend largely on being able to prove that you have the capacity to repay the loan and/or the collateral to secure the loan.

Some lenders will want to see:

Your business plan with projections of your future sales, profits, cash flow, income, etc.

Existing financial statements, including your balance sheet and income statement for the past few years.

Tax returns: Most lenders will want to see your business and personal income tax returns for the past two to three years.

Bank statements: Lenders will generally want to see at least two to three years of business bank statements.

If you are applying for an SBA loan, in addition to these financial documents, you should also prepare a resume for you and your management team detailing personal backgrounds, education, business experience, etc.

It also helps to research other businesses similar to yours. Your industry trade organization might have data on what average revenues, margins, and profits are like in your industry. If you can show that your planned operations compare extremely well against similar businesses, be sure to make note of this in your business plan.


For most small business loans, your personal credit history and financial condition will be considered as part of the loan underwriting process. In fact, your personal credit history will be one of the most important factors in the loan application.

So before lenders check your credit, you should do so yourself. Order a credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) to make sure there are no inaccuracies in your credit report. Anything that raises a red flag can jeopardize your chances of getting your loan approved.

If you can, pay down any existing personal credit card debt. That will help your loan application look much stronger. And if you have collateral, such as a home, make sure you have a recent appraisal so lenders can accurately evaluate your assets.


One of the most important factors in the loan application process is the age of your business. As we said above, new businesses and those that are younger than 2 years are going to have a harder time getting a loan. Why? Lenders want to see your financial history over time, and if your history isn’t very long, then they won’t have much to go by.

That being said, if you have a strong personal credit score, you still might stand a chance. There are startup loan products available for those with exceptional credit scores.

Word of advice — if you are a few months away from hitting your 2 year mark, and you can afford to wait, waiting those few extra months to apply for a loan might be your best bet.

How to get a small business loan is something we are asked all the time, and it’s nearly impossible to answer. But, truth be told, if you work your hardest to get your personal and business financials in shape, keeping a close eye on what lenders watch, your chances of getting a loan (and a well-priced one at that) will increase substantially.



13 Tips for hiring a loan

Beginners look at commercial loans as a means of realising a dream. They long to own their own restaurant, pub or bed-and-breakfast, and look to their friendly local bank manager for help. Cue frustration and disappointment. These days, loans are decided by back-room underwriters, who use cold calculation to decide your credit worthiness. To the seasoned pro, it’s just another day at the office; a handy way of adding to their portfolio. To get the best deal, you need to prepare in advance. Here are a few tips to help you on your way:

  1. Have your business plan, forecasts and projections, financial records and statements, history of the property’s income, and the appraisal when you approach lenders. Make sure these are accurate and up to date. This lets the bank know that you mean business. If make them think about your application, they are more likely to deny your loan.
  2. Put your own money down. You’ll need at least a deposit and closing costs. Lenders want to share the risk, not own it entirely. They will usually not finance more than 75% of the appraised value of the property. Personal guaranties of the principal owners may be necessary.
  3. Get your own appraisal of the property. This will provide you with an unbiased estimate of what the property is really worth. You’ll then know whether it’s worth the financial risk.
  4. Apply for your loan as soon as you can. Commercial lenders exaggerate their speed. They’ll quote you forty-five days when it’s more likely to be three months!
  5. Never rely on just one commercial lender. Commercial lending is very subjective. Submit your deal to at least four of them.
  6. Commercial lenders must order a property appraisal themselves. The bank won’t be allowed by law to accept one ordered by you or a third party.
  7. Most commercial lenders now require toxicity reports, to discover any contamination of the site. If a lender forecloses on a contaminated property, the lender inherits the expense of cleaning it up.
  8. Lenders near the property generally offer better terms. With those farther away, it’s a case of ‘out of sight, out of mind’.
  9. Does your company have a sizable cash flow? You can use the promise of depositing it with the lender to negotiate a better deal.
  10. Have a lawyer who specializes in property investment go over everything. You need someone who knows the business and who can be an advocate on your behalf.
  11. Be certain that you can afford to keep your business going and still meet your payments. Properties must show sufficient debt-repayment ability. If the property is to be occupied by a sole tenant, the lender will want to appraise that tenant’s finances.
  12. Check with your local small business administration for any potential grants or low interest loans you might be able to wangle.
  13. Negotiate. You do not have to take the first offer you get. Getting a loan is like buying any other good. People are sometimes too in awe of banks to haggle. There’s no need to be afraid; they can only say no!


7 Steps To Getting A Business Loan

While it is not as easy as it once was before the Great Recession, all banks and other lenders still need to loan money to small business. The key is to know how to do it and get the best terms. Here is a simple 7 step process:

Step 1: Start before the loan is needed. It is critical to build a relationship with the people at the lender before the business actually needs the loan. Let the key contacts get to know the company before asking for anything. Remember, people do business with who they know, like, and trust. Lenders work the same way.

Step 2: Decide what the money is needed for. There are good and bad reasons for business loans. Good reasons include financing a piece of equipment, real estate, long term software development or large seasonal sales variances. Bad reasons include financing ongoing losses, office build outs, or acquiring non-essential business assets.

Step 3: Decide how much money the company needs. Most small businesses don’t ask for a large enough loan. Underestimating the amount of money can lead to problems with a lack of working capital sooner than planned. Overestimating can make lenders question the business owner’s assumptions and credibility. Have a well thought out budget that is supported by financial projections (profit &  loss statement and a cash flow statement) that is reasonable and shows that the research was done.

Step 4: Know the score. Lenders still look at personal credit scores as a way to judge the reliability of the principals who are borrowing the money. It is important to know what lenders look for and how the scores compare to those expectations.

Credit score: A credit score of above 650-700 is considered acceptable, but does not guarantee a loan. Most lenders will look for a credit score that is at least in the 700-800 range.

Debt to income: Personal debt payments should not be more than 33% of gross monthly income.

Time in business: Lenders give unsecured working capital lines and term loans to businesses which are over 2 years old and have a reliable record of incoming accounts receivables.

Report on industry risk: Industry risk is rated based on the government SIC codes which are ranked. A small business owner needs to find out how their industry is rated.

Report on cash flow: The higher the operating cash margin, the better the chance is for a business to survive slower market conditions and ensure long term survival and growth. In the final analysis, most lenders give money based on the company’s cash flow since it measures the ability to successfully repay the loan.

Step 5: Find a lender. Research which type of lender is the best fit for the business’ loan needs.

Commercial banks: This is best for traditional loans that fall into the strict parameters discussed.

Non-bank lenders: These are increasing in record numbers for lenders looking to get a higher return. Help can be located using sites such as Fundera.

Region specific lenders: Local community banks and other lenders that have an interest in economic development in a certain geographic or industry area.

Micro and alternative lenders: Crowdfunding sites like Kickstarter and IndieGoGo can be helpful for capital needs under $10,000. Personal loans can also be sourced from peer to peer sites like Prosper and The Lending Club .

Step 6: Prepare the loan application package. The “Loan Package” is the paperwork submitted in order to apply for a loan. It generally includes:

A business plan including business owners’ resumes.

Financial results and projections (Profit & Loss, Balance Sheet and Cash Flow Statements).

Personal financial information including three years of tax returns.

Remember that lenders will be searching a small business owners’ personal social media sites as part of their research.

Step 7: Wait. Expect to get an answer within two to four weeks. Check in each week for a status. It is typical that the lending institution will need additional documentation.

Have you been successful in getting a business loan? If so, tell us how and who was the lender.