If approval rates are at record highs, why are businesses still struggling to be approved for small business loans? It’s usually for two reasons. First, there is a significant amount of bank-phobia. It’s not surprising. Bank speak can be intimidating. The second reason is less than stellar credit history.
Across the next two days, we will look at two examples of people we at ProStrategix helped to get loans. It is something quintessential to succeed in the long term. Today we will look at the story of Phil, who had made some decisions earlier in his business that left him with poor credit. The good news is that in smaller bank or alternative lenders, the trend is much better. In fact, approval rates are over 50%.
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Phil operates a small, but growing catering company. His niche was in providing untraditional services (food choice, attire, etc.) for Millennials and Gen Z’ers. Phil was able to provide less transitional graduations and weddings to his audience. Phil’s own youth is part of the reason for his success. While that’s helped him with his small business, it’s hurt him a bit too. Phil is a people person, who has a lot of friends and likes to hangout with them. It’s part of how he gets business, but it’s expensive in NYC. Plus, like his peers, he was heavily burdened by student load debt. He need money to expand, but banks weren’t willing to work with him. Understandably, he felt stuck and frustrated.
How We Helped Phil's Credit History
Personal Debt is Painful in More Ways than One
Phil’s case is all too common, especially for people in their 20s and 30s. Student loan debt is crushing. In fact, the average student owes nearly $40,000. While these rates are typically low, they are a millstone, even if you never miss a payment. Most business owners don’t realize that their personal debt level impacts their access to business capital.
We Skipped the Big Banks
With this debt load and his good, but not excellent (750+) credit score, big banks couldn’t help him. It’s not worth the time or hard inquiry on his credit report. We worked with an alternative lender, who specializes in cases like Phil’s. Phil has a strong payment history. Phil was in business for more than 2 years. Phil only need a modest amount (<$100 K). Luckily, a bit more than half of the applicants are approved. Typically, SBA loans are the loans of choice. They reduce the risk for both the lender and the borrower.
“The U.S. Small Business Administration (SBA) is the largest economic development agency in the world,” says SBA New York District Director, Beth Goldberg. “With an annual credit line of more than $30 billion allocated by Congress, SBA guaranteed loans help bridge the gap between small businesses that lenders might turn away and those who are able to start or grow companies with financing.”
A Clear Plan Won the Day
It was perfectly smooth sailing, but with a solid plan with proven business model, we were able to get Phil approved. Small business owners often look at business plans as a formality. In this case, it really made a difference. Like I said, Phil is a non-traditional guy. He was able to show that in his application. His plan captured the essence of his brand beautifully. Without it, I don’t believe the bank would have understand his unique benefit and its appeal to his target.